PRACTICAL  BANKING. 


ALBERT  S.  BOLLES, 


EDITOR    OF    THE    BANKER'S    MAGAZINE.        LECTURER    ON    BANKING    AND    TRUSTS 
IN    THE     LAW    DEPARTMENT    OF     THE    UNIVERSITY    OF     THE    CITY 
OF    NEW    YORK  ;     AUTHOR    OF    "  THE     FINANCIAL     HISTORY 
OF     THE      UNITED    STATES,"     "  INDUSTRIAL    HISTORY 
OF     THE    UNITED    STATES,"      "THE    CON- 
FLICT   BETWEEN    LABOR    AND 
CAPITAL,"    ETC. 


EIO-HTil    EDITIOlSr. 


NEW  YORK: 

ROMANS  PUBLISHING  COMPANY,  251  BROADWAV 
1892. 


COPYRIGHT,  1884. 
BY  ROMANS  PUBLISHING  COMPANY, 


TO 

LYMAN    J.   GAGE, 

PRESIDENT  OF  THE  AMERICAN  BANKERS'  ASSOCIATION, 

®jjft$  Jteafc  is  JteiruaiBir 

AS  A  TOKEN   OF  THE    AUTHOR'S   REGARD    FOR  HIS   FRIENDSHIP, 
AND   ADMIRATION   FOR   HIS   RARE   UNION 

OF   A   KNOWLEDGE  OF 

THE    HISTORY    AND    THEORY    OF    BANKING    AND    FINANCE 
WITH    EMINENT    SUCCESS    AS    A    BANKER. 


PREFACE. 


An  explanation  is  needful  concerning  the  origin  and  composition 
of  this  work.  For  several  years  letters  have  been  received  by  the 
publisher  of  the  Banker  s  Magazine  inquiring  whether  a  work  like 
this  existed.  Other  letters  of  inquiry  have  been  received  concerning 
the  Banker's  Common-Place  Book,  which,  after  the  issue  of  several  edi- 
tions, went  out  of  print.  For  a  long  period  I  have  been  trying  to 
find  an  opportunity  to  embody  the  more  important  matters  contained 
in  that  work,  with  additional  information  in  a  new  form,  but  the 
desire  to  complete  other  undertakings  resulted  in  the  postponement 
of  this  until  after  my  connection  with  the  School  of  Finance  and 
Economy  in  the  University  of  Pennsylvania,  when  the  need  of  the 
book  for  the  purpose  of  instruction  was  so  great  that  the  prepara- 
tion of  it  was  begun.  The  work,  therefore,  has  been  prepared  to 
serve  a  double  purpose ;  first,  for  those  in  banks,  and  elsewhere, 
who  wish  to  learn  how  the  business  of  banking  is  conducted;  and, 
secondly,  for  use  as  a  text  book  for  the  students  whom  it  is  my 
pleasure  to  instruct. 

I  have  not  aimed  to  produce  an  original  work,  but  the  best  for 
the  purposes  mentioned.  Accordingly,  I  have  profited  by  the  labor 
of  others  to  a  considerable  extent,  and  it  is  fitting  that  I  should 
acknowledge  my  indebtedness  to  them.  In  1858  James  S.  Gibbons, 
Cashier  of  the  Ocean  Bank  of  New  York,  wrote  a  work  on  The 
Banks  of  New  York,  which  ran  through  ten  editions,  and  merited 
the  favorable  reception  accorded  to  it.  Changes,  however,  have 
occurred  in  banking  methods  since  he  wrote,  while  the  style  of 
Mr.  Gibbons'  work,  though  very  lively  and  appropriate  for  the  gen- 
eral reader,  is  not  suitable  for  a  class-room  book.  Nevertheless,  I 
have  drawn  very  largely  from  that  source  in  the  preparation  of 
Part  I.  and  with  much  pleasure  I  acknowledge  my  indebtedness  to 
this  pioneer  in  describing  the  methods  of  conducting  the  business 
of  banking. 


VI  PREFACE. 

Aid  has  been  derived  from  other  sources.  This  has  been 
acknowledged  in  various  places,  but  additional  mention  may  be 
properly  made  of  several  writers  and  sources  of  information.  The 
more  important  sections  of  the  Banker's  Common-Place  Book  have 
been  thoroughly  revised  and  incorporated  with  other  matter  in 
Chapters  VI.  and  VII.;  and  the  essay  entitled  "Suggestions  to 
Young  Cashiers  on  the  Duties  of  their  Profession,"  is  given  in  the 
Appendix.  Another  portion  of  Chapter  VII.,  from  pages  51  to  58, 
was  written  by  George  Walker,  formerly  Bank  Commissioner  of 
Massachusetts,  and  a  banker  of  many  years'  experience,  who  has 
justly  acquired  the  high  reputation  he  enjoys  as  a  financial  writer 
on  both  sides  of  the  Atlantic.  Chapter  XIV.,  on  "  The  Book- 
keeper," has  been  prepared  by  S.  R.  Hopkins,  who  has  happily  joined 
an  exceptionally  valuable  experience  as  an  accountant  in  all  its 
forms,  private,  corporate  and  municipal,  with  excellent  facility  for 
description.  He  has  also  prepared  the  last  part  of  the  work  re- 
lating to  "  Trust  Companies."  The  chapter  on  "  Private  Banking" 
is  from  the  pen  of  Eugene  R.  Leland,  of  New  York,  formerly  a 
banker  in  Wisconsin. 

Part  I.,  relating  to  "Deposit  and  Discount  Banking,"  with  the 
exception  of  three  chapters,  has  also  been  revised  by  Frederick  B. 
Schenck,  Cashier  of  the  Mercantile  National  Bank  of  New  York.  For 
the  interest  he  has  taken  in  the  subject,  and  for  the  valuable  ideas 
and  suggestions  with  which  he  has  enriched  this  part  of  the  work,  I 
am  profoundly  grateful.  To  J.  M.  Dreisbach,  Cashier  of  the  Second 
National  Bank  of  Mauch  Chunk,  Penn.,  for  information  relating  to 
Country  Banking  and  to  the  Balance  Sheet  in  the  Appendix. 

Part  Second,  relating  to  Savings  Banks,  with  the  exception  of 
the  first  and  last  chapters,  is  the  work  of  Charles  E.  Sprague,  Sec- 
retary of  the  Union  Dime  Savings  Bank  of  New  York.  A  practical 
writer,  and  an  experienced  Savings  Bank  officer,  it  is  believed  that  no 
better  description  of  the  method  of  conducting  the  Savings-bank 
business  could  be  presented  to  the  reader. 

The  Third  Part,  relating  to  Clearing-Houses,  has  been  prepared 
by  Dudley  P.  Bailey,  of  Boston.  For  several  years  he  has  devoted 
much  study  to  the  subject,  and  some  of  his  papers  have  attracted 
wide  attention.  I  know  of  no  one  who  could  have  given  a  better 
account  of  the  method  of  conducting  the  business  of  these  insti- 


PREFACE.  Vii 

tutions.  In  this  connection  we  would  not  omit  to  mention  the 
names  of  Nathaniel  G.  Snelling,  Manager  of  the  Boston  Clearing- 
house, and  Wm.  A.  Camp,  Manager  of  the  Clearing-house  in  New 
York,  for  information  and  other  assistance  rendered  by  them  in  the 
preparation  of  this  part  of  the  work.  Important  assistance  was  ren- 
dered by  W.  D.  Snow,  Secretary  of  the  American  Loan  and  Trust 
Company,  and  by  L.  K.  McKinney,  Trust  Clerk  of  the  same 
Company,  in  preparing  Part  IV.  relating  to  Loan  and  Trust 
Companies. 

I  trust  that  the  work  will  prove  useful.  That  it  may  be  im- 
proved in  future  editions,  criticisms,  facts  and  suggestions  are  so- 
licited from  every  intelligent  source. 

ALBERT  S.  BOLLES. 

PHILADELPHIA,  October  jist,  1884. 


CONTENTS. 


PART   I. 
DEPOSIT  AND  DISCOUNT  BANKING. 

PAGE 
CHAPTER  I. 

THE  ORIGIN  AND  NATURE  OF  BANKING 3 

CHAPTER  II. 
TH-?  UTILITY  OF  BANKING t» 

CHAPTER  ill. 
THE  NATIONAL  BANKING  SYSTEM y 

CHAPTER  IV. 
STATE  BANKS 14 

CHAPTER  V. 
How  BANKS  ARE  ORGANIZED  AND  ISSUE  NOTES 16 

CHAPTER  VI. 
THE  PRESIDENT 24 

CHAPTER  VII. 
DIRECTORS'  MEETINGS  AND  DISCOUNTING 43 

CHAPTER  VIII. 
THE  CASHIER 72 

CHAPTER  IX. 
THE  PAYING  TELLER 77 

CHAPTER  X. 
THE  RECEIVING  TELLER 88 

CHAPTER  XI. 
THE  NOTE  TELLER 93 

CHAPTER  XII. 
THE  DISCOUNT  CLERK 97 

CHAPTER  XIII. 
COLLECTIONS..  .  100 


X  CONTENTS. 

CHAPTER  XIV. 
THE  BOOKKEEPER 104 

CHAPTER  XV. 
THE  RUNNER  AND  PORTER 128 

CHAPTER  XVI. 
DEALINGS  IN  EXCHANGE 130 

CHAPTER  XVII. 
PRIVATE  BANKS 139 

CHAPTER  XVIII. 
COUNTRY  BANKING 143 


PART  II. 

SAVINGS  BANKS. 

CHAPTER  I. 
UTILITY  OF  SAVINGS  BANKS 151 

CHAPTER  II. 
JANITOR 158 

CHAPTER  III. 
THE  DEPOSITOR 159 

CHAPTER  IV. 
THE  RECEIVING  TELLER 165 

CHAPTER  V. 
THE  PAYING  TELLER 170 

CHAPTER  VI. 
THE  BOOKKEEPER 173 

CHAPTER  VII. 
THE  TREASURER 177 

CHAPTER  VIII. 
THE  SECRETARY. 181 

CHAPTER  IX. 
THE  PRESIDENT 196 

CHAPTER  X. 
THE  BOARD  OF  TRUSTEES i97 

CHAPTER  XI. 
THE  ATTORNEY .  200 


CONTENTS.  XI 

CHAPTER   XII. 
STATE  SUPERVISION  AND  REPORTS 203 

CHAPTER  XIII. 
How  INVESTMENTS  SHOULD  BE  MADE 208 


PART    III. 
CLEARING-HO  USES. 

CHAPTER  I. 
ORIGIN  AND  UTILITY  OF  THE  CLEARING-HOUSE 217 

CHAPTER  II. 
ORGANIZATION  AND  MECHANICAL  ARRANGEMENTS 222 

CHAPTER  III. 
PREPARATION  OF  THE  EXCHANGE » 224 

CHAPTER  IV. 
How  CLEARINGS  ARE  MADE 229 

CHAPTER  V. 
How  OUTSIDE  BANKS  MAKE  CLEARINGS 234 

CHAPTER  VI. 
PAYMENT  OF  BALANCES 236 

CHAPTER  VII. 
CLEARING-HOUSE  CERTIFICATES 239 

CHAPTER  VIII. 
THE  RECORDS  KEPT  AND  THEIR  USES 242 

CHAPTER  IX. 
FINES 246 

CHAPTER  X. 
HISTORY  OF  THE  NEW  YORK  CLEARING-HOUSE 247 

CHAPTER   XI. 
CLEARING-HOUSES  OUTSIDE  NEW  YORK 250 

CHAPTER  XII. 
FOREIGN  CLEARING-HOUSES 263 

CHAPTER  XIII. 
COUNTRY  CLEARINGS 274 


Xll  CONTENTS. 

PART  IV. 
LOAN  AND    TRUST  COMPANIES. 

CHAPTER  I. 
HISTORY  AND  SCOPE  OF  LOAN  AND  TRUST  COMPANIES 281 

CHAPTER  II. 
How  BUSINESS  is  CONDUCTED 283 


APPENDIX. 

BANKING  AS  A  PROFESSION  FOR  YOUNG  MEN -. 293 

ADVICE  TO  DEPOSITORS 297 

SUGGESTIONS  TO  YOUNG  CASHIERS  ON  THE  DUTIES  OF  THEIR  PROFESSION.  300 


PART   I. 
DEPOSIT  AND    DISCOUNT   BANKING, 


UHIVBESIT7 


PRACTICAL  BANKING. 


CHAPTER  I. 
THE   ORIGIN   AND   NATURE   OP   BANKING. 


The  term  bank  is  supposed  to  be  derived  from  banco,  the  Italian 
word  for  bench,  the  Lombard  Jews  in  Italy  having  benches  in  the 
market-place  where  they  exchanged  money  and  bills.  When  a  banker 
failed,  his  bench  was  broken  by  the  people,  and  he  was  called  a 
bankrupt. 

This  derivation  of  the  term,  however,  is  probably  wrong.  "  The 
true  original  meaning  of  banco"  says  MacLeod,*  "is  a  heap,  or  mound, 
and  this  word  was  metaphorically  applied  to  signify  a  common 
fund,  or  joint  stock,  formed  by  the  contributions  of  a  multitude  of 
persons." 

A  brief  account  of  the  first  banking  operations  in  Venice  will 
dispel  the  haze  enveloping  this  subject.  In  1171  the  financial  con- 
dition of  Venice  was  strained  in  consequence  of  the  wars  in  which 
the  people  were  engaged.  The  great  council  of  the  republic  fin- 
ally determined  to  raise  a  forced  loan.  Every  citizen  was  obliged 
to  contribute  the  hundredth  part  of  his  possessions  to  the  State, 
receiving  therefor  interest  at  the  rate  of  five  per  cent.  The  public 
revenues  were  mortgaged  to  secure  the  interest,  and  commissioners 
were  appointed  to  pay  the  interest  to  the  fundholders  and  to  trans- 
fer the  stock.  The  loan  had  several  names  in  Italian,  Compera, 
Mutuo,  but  the  most  common  was  Monte,  a  joint  stock  fund.  After- 
ward, two  more  loans  were  contracted,  and  in  exchange  for  the 
money  contributed  by  the  citizens,  the  commissioners  gave  stock 
certificates  bearing  interest,  and  which  could  be  sold  and  trans- 
ferred. • 

*  Principles  of  Economic  Philosophy,   vol.  i,  p.   547. 


4  PRACTICAL   BANKING. 

At  this  period  the  Germans  were  masters  of  a  great  part  of  Italy, 
and  the  German  word  Banck  came  into  use  as  well  as  its  Italian 
equivalent  Monte.  The  Italians  ere  long  changed  Banck  into  Banco, 
and  the  public  loans  or  debts  were  called  Monti  or  Banchi.  Thus 
an  English  .writer,  Benbrigge,  who  wrote  in  1646,  mentioned  the 
"three  bankes"  at  Venice,  by  which  he  meant  the  three  public 
loans,  or  Monte,  that  we  have  described.  Likewise  Count  Cibrario, 
who  wrote  a  work  on  Political  Economy  in  the  Middle  Age,  says,  "  it 
is  known  that  the  first  Bank,  or  Public  Debt,  was  erected  at  Venice 
in  1171."  Other  proof  of  the  same  nature  might  be  added  to 
show  that  Banco  in  Italian  meant  a  fund  formed  by  several  con- 
tributions ;  and  the  Bank  of  Venice  was  really  the  first  funding 
system,  or  system  of  public  debts. 

"  A  banker,"  says  Gilbart,  "  is  a  dealer  in  capital,  or,  more  prop- 
erly, a  dealer  in  money.  He  is  an  intermediate  party  between  the 
borrower  and  the  lender."  The  difference  between  the  rate  re- 
ceived by  the  banker,  for  the  use  of  the  money  loaned  by  him, 
and  the  rate  he  has  to  pay  for  it,  is  his  profit. 

"  By  this  means  he  draws  into  active  operations  those  small  sums 
of  money  which  were  previously  unproductive  in  the  hands  of  pri- 
vate individuals,  and  at  the  same  time  furnishes  accommodation  to 
those  who  have  need  of  additional  capital  to  carry  on  their  busi- 
ness." In  other  words,  a  bank  is  a  means  for  organizing  capital 
whereby  its  full  power  may  be  utilized.  The  function  of  a  bank 
in  storing  up  capital,  and  thus  increasing  its  power,  has  been 
likened  to  that  of  a  dam  put  across  a  stream.  Before  the  erec- 
tion of  the  structure,  the  waters  coursed  their  way  through  wood 
and  meadow,  contributing,  it  is  true,  to  the  diversity  and  beauty 
of  the  scene,  beside  satisfying  a  needful  want  of  man  and  beast. 
To  the  poet,  the  stream  gave  forth  an  unregarded  music,  while  a 
De  Quincey  would  hearken  with  profound  emotion  and  awe 
to  the  "sound-pealing  anthems,  as  if  streaming  from  the  open 
portals  of  some  illimitable  cathedral."  But  by  storing  up  the 
waters,  a  force  is  collected  which  can  be  used  for  running  the 
largest  factory,  and  thus  ministering  in  a  very  potent  way  to  ad- 
vance the  material  prosperity  of  man. 

There  are  several  kinds  of  banks.  They  may  be  divided  first  into 
private  and  public  banks.  Private  banks  are  conducted  by  individ- 
uals without  incorporation.  They  are  very  numerous  in  our  country. 
The  number  given  in  the  Banker's  Almanac  and  Register,  not  in- 
cluding brokers,  for  the  year  1884,  was  3,387.  They  exist  in  all  the 
States  and  Territories.  Some  of  them  have  flourished  for  a  long 
period,  and  are  regarded  very  sound,  and  worthy  of  the  highest 
credit. 

Chartered  banks  may  be  divided  into  two  classes :  those  organized 
and  existing  under  the  laws  of  the  United  States;  and  State  institu- 


THE    ORIGIN    AND    NATURE    OF    BANKING.  5 

tions.  The  latter  may  be  again  divided  into  Deposit  and  Discount 
banks,  Savings  banks  and  Trust  companies.  Each  class  will  be  de- 
scribed hereafter. 

The  business  of  banking  consists  ( i )  in  receiving  deposits  of 
money  on  which  interest  may  or  may  not  be  allowed ;  ( 2 )  in 
making  advances  of  money,  principally  in  the  way  of  discounting 
notes;  (3)  in  effecting  the  transmission  of  money  from  one  place 
to  another.  This  is  true  of  the  ordinary  banks  of  deposit  and  dis- 
count, both  State  and  National. 

The  disposable  means  of  a  bank  consists  ( i  )  of  the  capital  paid 
down  by  the  shareholders ;  ( 2 )  the  money  deposited  with  it  by 
its  customers;  (3)  the  notes  it  can  circulate;  (4)  the  money  it 
receives  in  the  course  of  transmission,  and  which,  of  course,  it  must 
repay  at  another  place. 

The  expenses  of  a  bank  may  be  thus  classified:  rent,  taxes  and 
repairs  of  the  banking-house,  salaries  of  officers,  stationery  and 
postage.  To  this  may  be  added  interest  upon  deposits,  if  allowed. 

The  profits  of  a  bank  consist  of  that  portion  of  its  total  re- 
ceipts, including  discount,  interest,  dividends  and  commissions,  which 
exceed  the  -total  amount  of  expenses. 


PRACTICAL    BANKING. 


CHAPTER  II. 
THE   UTILITY   OP   BANKING.* 

I.  Banks  are  useful  as  places  of  security  for  the  deposit  of 
money.  Not  long  ago  a  Western  farmer  received  nearly  ten  thousand 
dollars  in  specie  from  the  Government  in  payment  for  bonds.  Not 
regarding  a  bank  as  a  safe  place  for  depositing  his  gold,  he  put  it 
in  the  bottom  of  a  barrel  in  his  wood-shed,  filled  it  nearly  full  of 
ashes,  and  the  remainder  with  straw ;  he  then  made  a  nest  there, 
filled  it  with  eggs,  and  put  them  in  the  custody  of  a  setting  hen. 
He  thought  that  his  sagacity  was  quite  equal  to  the  occasion. 
After  waiting  a  couple  of  weeks  he  concluded,  one  Sunday,  when 
having  nothing  else  to  do,  that  he  would  examine  his  highly  origi- 
nal safe  in  the  wood-shed.  The  old  hen  was  decidedly  cross,  and 
did  not  enjoy  his  presence.  Still  she  felt  better  than  he  did  as 
soon  as  he  had  plunged  his  arm  down  the  side  of  the  barrel  and 
found  that  some  one  had  kindly  relieved  him  of  his  gold.  Prob- 
ably he  will  think  more  highly  of  banks  as  places  of  deposit  in 
the  future. 

The  need  of  a  safe  place  of  deposit  gave  rise  to  the  leaving  of 
valuables  with  the  goldsmiths  of  London.  If  money  is  deposited 
in  a  bank  and  lost,  even  though  not  negligent  it  is  responsible* 
Robberies  would  rapidly  multiply  if  much  money  were  kept  in 
houses.  The  depositing  of  it  with  banks  spares  many  a  house 
from  the  invasion  of  robbers. 

2.  A  greater  profit  is  acquired  by  the  owners  of  money  than 
would  be  if  banks  did  not  exist.  The  aVIfjwanrp  olJl!l£i£SL  by 
"  the  new-fashioned  bankers "  has  been  considered  the  origin  of 
modern  banking.  A  large  amount  of  money,  in  the  aggregate, 
would  remain  idle  and  unproductive  if  these  institutions  did  not 
exist.  By  offering  to  pay  interest,  persons  having  money  are  in- 
duced to  deposit  it  with  banks,  and  thus  increase  their  gains. 
[jf.  Moreover,  the  payment  of  interest  on  deposits  is  a  stimulant 
to  accumulate]  money.  Were  there  no  Savings  banks,  a  large  por- 

*  On  this  subject  Mr.  George  S.  Coe,  President  of  the  American  Exchange  National 
Bank,  delivered  an  admirable  address  before  the  American  Bankers'  Association,  in  1882, 
answering  the  question,  "What  Important  Function  Do  We,  as  Bankers,  Perform?"  See 
Banker's  Magazine,  vol.  37,  p.  170. 


THE  UTILITY  OF   BANKING.  7 

tion  of  the  savings  deposited  in  them  would  never  have  been  col- 
lected and  saved.  Probably  the  majority  of  these  depositors  have 
no  thought  of  collecting  enough  to  buy  a  bond  or  a  few  shares  of 
stock.  Such  a  process  of  saving  is  too  elaborate  for  them.  But 
when  a  way  is  provided  for  adding  to  their  savings  by  simply  de- 
positing their  money  in  a  bank,  thousands,  nay  millions,  of  persons 
in  our  country  have  availed  themselves  of  the  opportunity. 

4.  An  important  utility  is  that  banks  loan   money  to  persons  who 
wish   to  borrow  it.     Loans  are   made  chiefly  to   persons  engaged    in 
manufactures,  trade,  commerce,  and  other  business   pursuits.     Money 
is  especially  needful  to  them  to  conduct  their  enterprises.     Indeed,  if 
they  could   not  obtain   it,  they  could    not    maintain   their  place  in, 
the  world  of    business.      The    credit  that    some    mercantile    houses 
have  is  worth   more  to  them  than  the  capital  they  actually  possess. 

5.  Another  utility  is  that  banks  save  the    transmission  of  money^ 
from   one   part  of  the  world   to  another^     Rot  only   is  the   risk   of 
loss  from  robbery   and  other  accidents   avoided,  but  the    money    is 
kept  in  more  active  circulation.      Were   it   actually  sent  from   place 
to  place  to  effect  all    the  payments  that    are    daily   made,   a    large 
amount   must  be  locked  up  in   the  process   of  transportation,   which 
otherwise  would  be  more  actively  employed. 

fjS,  There  is  a  saving  of  time  in  paying  large  sums  by  checks  or 
bills  of  exchanged]  To  count  the  money  would  be  a  long  process 
in  making  the  many  heavy  payments  of  our  time. 

7.  There  is  less  .d^gejrjofjerror  when  checks  are  used  than  when 
money   is   paid.    Of  course  there  are   some  risks  attending  the  use 
of    checks.      But  in    paying  with   money  there    is  also    the  risk  of 
getting  counterfeits,  light  weight,  or  otherwise   defective  coin. 

8.  Besides,  checks  constitute  a   good   record    of  one's   expenditure. 
If  an    individual  deposits   all   the    money  he  receives   with  a  bank, 
and   draws  it  out   by  checks,  his   check-book  contains  the   story   of 
his  income  and  expenditure.      For   persons   who  do  not  have  strict 
business  habits  this  mode  of  keeping  their  money  and   paying  their 
bills   is  especially  worth  observing. 

9.  A  bank  account   is  very  useful  if  a   payment   is  disputed.      In- 
dividuals do  not  always  take   receipts   for  the   money  they  pay,  and 
even  if    they   do,  sometimes   lose  them.     If  a  bill  be   paid,  but  no 
proof   can   be   furnished  of    paying    it   and    payment    be    again    de- 
manded, too  often  it  must  be  paid  a  second  time.     But  if  a  check 
for  the  bill  be  given    this    is    the    best  kind   of    evidence  of    pay- 
ment. 

ip.  If  one  has  an  account  with  a  bank  it  is  often  a  good  chan- 
nel for  getting  useful  business  information^/  If  one  has  money  to 
collect  or  to  remit,  a  banker,  when,  asked,  will  state  the  best  way  of 
proceeding.  Not  infrequently  bank  officials  give  valuable  advice 
pertaining  to  investments  and  other  matters. 


8  PRACTICAL    BANKING. 

II.  An  eminent  English  banker,*  from  whose  work  on  Banking 
many  of  the  ideas  in  this  chapter  have  been  obtained,  has  said  that 
"banking  also  exercises  a  powerful  influence  upon  the  morals  of 
society,  ft  tends  to  produce  honesty  and  punctuality  in  pecuniary 
engagements.  Bankers,  for  their  own  interest,  always  have  a  regard 
to  the  moral  character  of  the  party  with  whom  they  deal ;  they 
inquire  whether  he  be  honest  or  tricky,  industrious  or  idle,  prudent 
or  speculative,  thrifty  or  prodigal,  and  they  will  more  readily  make 
advances  to  a  man  of  moderate  property  and  good  morals  than  to 
a  man  of  large  property  but  of  inferior  reputation.  Thus  the  estab- 
lishment of  a  bank  in  any  place  immediately  advances  the  pecu- 
niary value  of  a  good  moral  character.  There  are  numerous  in- 
stances of  persons  having  risen  from  obscurity  to  wealth  only  by 
means  of  their  moral  character,  and  the  confidence  which  that 
character  produced  in  the  mind  of  their  banker.  It  is  not  merely 
by  way  of  loan  or  discount  that  a  banker  serves  such  a  person.  He 
also  speaks  well  of  him  to  those  persons  who  may  make  inquiries 
respecting  him ;  and  the  banker's  good  opinion  will  be  the  means 
of  procuring  him  a  higher  degree  of  credit  with  the  parties  with 
whom  he  trades.  These  effects  are  easily  perceivable.  It  is  thus 
that  bankers  perform  the  functions  of  public  conservators  of  the 
commercial  virtues.  From  motives  of  private  interest  they  encourage 
the  industrious,  the  prudent,  the  punctual,  and  the  honest,  while 
they  discountenance  the  spendthrift  and  the  gambler,  the  liar  and 
the  knave.  They  hold  out  inducements  to  uprightness,  which  are 
not  disregarded  by  even  the  most  abandoned.  There  is  many  a  man 
who  would  be  deterred  from  dishonesty  by  the  frown  of  a  banker, 
though  he  might  care  but  little  for  the  admonitions  of  a  bishop." 

*GUbart 


THE  NATIONAL   BANKING   SYSTEM. 


CHAPTER   III. 
THE   NATIONAL    BANKING    SYSTEM. 

As  we  have  seen,  the  business  of  banking  consists  in  getting  a 
common  fund  of  money,  and  in  lending  a  part  of  it.  With  this 
general  conception  is  associated  the  discounting  of  bills  of  exchange, 
the  collection  of  notes  and  drafts  and  the  issuing  of  circulating 
notes.  The  business  may  be  conducted  by  one  person,  who  is 
called  a  banker;  or  by  partners,  as  in  any  ordinary  business,  who 
also  are  called  bankers.  Again,  a  number  of  men  may  join  their 
capital  under  a  State  law,  and  organize  a  State  bank  or  associa- 
tion, the  capital  of  which  is  divided  into  shares.  Capitalists  may 
also  unite  under  the  laws  of  the  United  States,  and  form  a  Na- 
tional banking  association. 

Under  these  varying  forms  a  banking  business  is  done.  We  may 
look  at  the  reasons  why  men  prefer  one  form  to  another.  If  a 
man  has  considerable  means  and  enjoys  the  confidence  of  the  com- 
munity, he  may  prefer  to  engage  in  banking  alone,  unfettered  by 
State  or  National  laws.  He  may  conduct  his  business  in  his  own 
way ;  and  if  the  people  do  not  like  it  they  need  not  patronize 
him.  A  firm  may  do  the  same  thing.  They  may  be  a  law  unto 
themselves.  But  when  men  organize  under  a  State  law,  they  are* 
bound  by  the  law.  They  are  subject  to  inspection.  They  must 
pay  a  tax  on  the  amount,  of  money  used  in  their  business.  If 
they  issue  promises  to  pay,  a  coin  reserve  must  be  kept  to  pay 
them.  By  a  National  bank  is  meant  not  that  the  Government  • 
owns  or  runs  it,  but  authorizes  its  creation  and  prescribes  itSi 
mode  of  doing  business.  Every  association  under  this  law,  whether]  ( 
in  Maine  or  in  Texas,  is  governed  by  the  same  principles,  is  sub- 
ject to  the  same  inspection,  uses  the  same  blanks  in  making  re- 
turns to  the  Treasury  Department  at  Washington,  and  is  under 
the  same  penalties  for  the  violation  of  any  duty.  All  are  treated 
alike.  The  advantage  to  the  people,  of  this  system  over  any 
other  is,  the  existence  of  a  power  above  the  bank,  to  which  they 
can  appeal  if  injustice  is  done.  Another  advantage  of  this  sys- 
tem is  the  general  Government  having  seen  fit  to  permit  these 
associations  to  issue  promises  to  pay,  based  on  the  security  of 


10  PRACTICAL    BANKING. 

United  States  bonds  held  in  Washington,  for  the  absolute  and 
prompt  payment  of  every  note  issued  on  such  security,  the  poor- 
est and  humblest  citizen  knows  when  he  gets  his  pay  on  Saturday 
night  in  a  National  bank  bill,  that  he  has  the  faith  of  the  Govern- 
ment behind  his  paper  'promise  to  pay.  He  need  not  see  what 
bank  issued  it ;  for  any  bank  must  receive  it  for  a  debt  due,  and 
the  Government  must  pay  for  it  in  coin  if  the  local  bank  fail. 

The  National  banking  system  was  based  on  the  system  of  bank- 
ing existing  in  the  State  of  New  York  in  1862.  That  system  had 
existed  many  years;  it  had  furnished  adequate  protection  to  bill- 
holders;  and  in  several  respects  was  better  than  any  system  which 
had  preceded  it.  The  Rev.  Dr.  John  McVicker,  professor  of  Politi- 
cal Economy  in  Columbia  College,  was  the  author  of  the  system, 
and  set  it  forth  in  a  letter  to  a  member  of  the  New  York  Legis- 
lature, entitled,  Hints  relating  to  Banking,  written  in  1827.  As  this 
is  the  principal  banking  system  in  the  country,  and  the  only  one 
by  which  banks  now  issue  notes  of  their  own,  the  chief  features 
are  worth  describing  in  this  place. 

By  the  National  law,  banking  associations  may  be  formed  by  five 
or  more  persons  who  must  specify  in  their  articles  of  association 
the  general  objects  for  thus  uniting. 

They  must  make  "  an  organization  certificate  "  specifying : 

A. — The  name  assumed  by  the  association. 

B. — Its  place  of  business. 

C. — The  amount  of  its  capital  stock  and  the  number  of  shares  into 
which  it  is  divided. 

D. — The  names  and  residences  of  the  shareholders  and  the  number 
of  shares  held  by  each. 

E. — A  declaration  that  the  certificate  is  made  to  enable  them  to 
avail  themselves  of  the  advantages  of  the  act. 

No  association  may  be  organized  with  a  less  capital  than  $  100,000, 
except  that  banks  with  a  capital  of  not  less  than  $  50,000,  may, 
with  the  approval  of  the  Secretary  of  the  Treasury,  be  organized 
in  any  place  with  a  population  not  exceeding  6,000  inhabitants.  In 
cities  with  a  population  exceeding  50,000  persons,  at  least  $200,000 
capital  is  required.  Any  National  banking  association  designated  for 
the  purpose  by  the  Secretary  of  the  Treasury,  may  become  a  deposi- 
tory of  public  money  and  be  employed  as  financial  agent  of  the  Gov- 
ernment. 

Associations  so  designated  must  give  satisfactory  security  by  the 
deposit  of  United  States  bonds,  or  otherwise,  for  the  faithful  per- 
formance of  their  duties. 

The  association  may  sue  and  be  sued,  elect  directors,  who,  in 
turn,  may  elect  a  president,  vice-president,  cashier  and  other  of- 


THE  NATIONAL   BANKING  SYSTEM.  II 

ficers;  discount  and  negotiate  promissory  notes,  drafts,  bills  of  ex- 
change, and  other  evidences  of  debt ;  receive  deposits,  buy  and  sell 
exchange,  coin  and  bullion ;  loan  money  on  personal  security,  issue 
and  circulate  its  own  notes,  and  make  all  needful  by-laws  not  in- 
consistent with  the  Banking  Act. 

There  must  be  at  least  five  directors.  Each  director  must  own 
at  least  ten  shares  of  the  stock ;  he  holds  his  office  until  the  elec- 
tion and  qualification  of  his  successor.  Annual  meetings  are  held 
in  January.  The  capital  stock  is  divided  into  shares  of  $100  each, 
and  is  transferable.  The  liability  of  a  shareholder  is  limited  to  a 
sum  equal  to  the  par  value  of  his  stock. 

Before  beginning  business,  fifty  per  cent,  of  the  capital  stock  of  an 
association  must  be  paid  in,  and  ten  per  cent,  of  the  remainder 
monthly,  until  it  is  all  paid. 

The  next  step  is  the  transmission  by  the  association  of  a  certifi- 
cate to  the  Comptroller  of  the  Currency  ( who  is  the  chief  official 
of  the  Government  in  this  particular  department)  stating  that  fifty 
per  cent,  of  the  capital  has  been  paid,  and  that  all  the  provisions 
of  the  law  with  reference  to  organizing  a  bank  have  been  observed. 
He  then  makes  such  an  examination  as  may  be  thought  necessary, 
and  if  he  finds  that  the  law  has  been  properly  complied  with,  he 
gives  to  the  association  a  certificate  to  that  effect,  and  that  it  is 
authorized  to  begin  business.  This  certificate  must  be  published 
within  sixty  days  from  the  time  of  issuing  it.* 

Formerly  the  entire  amount  of  bank  notes  which  the  banks  were 
permitted  to  issue  was  limited  to  $300,000,000,  but  in  1875  the  law. 
was  changed,  and  they  can  now  issue  as  many  as  they  please,  pro-' 
vided  they  have  a  certain  amount  of  Government  bonds  deposited 
with  the  Treasurer. 

As  a  necessary  preliminary  to  furnishing  notes  for  circulation,  the 
Comptroller  of  the  Currency  under  the  direction  of  the  Secretary 
of  the  Treasury,  is  entrusted  with  the  important  duty  of  engraving 
plates  in  the  best  manner,  to  guard  against  counterfeiting  and  fraud- 
ulent alterations,  and  to  print  therefrom  and  number  so  many  circu- 
lating notes  in  blank  as  may  be  required  to  supply  the  associations 
entitled  to  receive  the  same. 

After  these  notes  have  been  signed  by  the  president  or  vice-presi- 
dent and  the  cashier,  they  are  issued,  and  circulate  the  same  as 
money,  and  are  received  at  par  everywhere  in  payment  of  taxes  ex- 
cises, public  lands,  and  all  other  dues  to  the  Government,  except  for 
duties  on  imports ;  and  also  for  all  salaries  and  other  debts  owing 

*The  former  Comptroller  of  the  Currency,  Mr.  Knox,  issued  a  very  useful  Government  pub- 
lication of  forty  pages,  entitled  Instructions  and  Suggestions  of  the  Comptroller  of  the  Cur- 
rency in  regard  to  the  Organization,  Extension  and  Management  of  National  Banks,  It 
contains,  among  other  matters,  many  of  the  forms  required  by  the  National  law,  an  excellent 
set  of  by-laws,  and  a  summary  of  the  principal  restrictions  and  requirements  of  the  National 
bank  law,  which,  with  National  Banking  Laws,  is  published  by  Homans  Publishing  Co. 


12  PRACTICAL    BANKING. 

t>y  the  United  States,  except  interest  on  the  public  debt  and  in  re- 
demption of  the  legal-tender  notes.  They  are  also  a  legal  tender 
for  any  debt  or  liability  to  every  National  banking  association. 

Every  National  banking  association  is  required  to  keep  on  de- 
posit in  the  Treasury  of  the  United  States  a  sum  equal  to  five  per 
centum  of  its  circulation,  which  sum  is  counted  as  part  of  its  law- 
ful reserve.  All  notes  of  National  banks  worn,  defaced,  mutilated, 
or  otherwise  unfit  for  circulation,  are  forwarded  to  the  Treasurer 
of  the  United  States  for  redemption.  Such  redemptions  are  reim- 
bursed from  the  five  per  cent,  fund,  and  notes  worn  and  unfit  for 
circulation  are  then  forwarded  to  the  Comptroller  of  the  Currency 
for  destruction.  After  making  a  record  of  the  notes  thus  received,  the 
Comptroller  directs  their  destruction  in  the  presence  of  four  persons. 

National  banks  having  a  capital  of  $  1 50,000  or  less  are  required 
to  keep  on  deposit  with  the  Treasurer  of  the  United  States,  United 
States  bonds  equal  in  amount  to  one-fourth  of  their  capital  stock. 
Other  banks  are  required  to  keep  on  deposit  not  less  than  $50,000 
in  United  States  bonds.  Upon  a  deposit  of  bonds  the  association 
making  the  same  is  entitled  to  receive  from  the  Comptroller  cir- 
culating notes  equal  in  amount  to  ninety  per  centum  of  the  par 
value  of  the  United  States  bonds  so  deposited,  but  the  total 
amount  of  such  notes  issued  to  any  association  may  not  exceed 
ninety  per  centum  of  the  amount  of  its  capital  stock  actually 
paid  in. 

Every  bank  annually  examines  or  has  examined  the  bonds  de- 
posited in  the  office  of  the  United  States  Treasurer,  comparing 
them  with  the  books  of  the  Comptroller,  and  with  its  own  record 
of  them,  and  if  the  bonds  exist  and  the  record  of  them  is  correct, 
executes  a  certificate  to  that  effect  to  the  Treasurer. 

A  National  bank  can  hold  real  estate  under  the  following  con- 
ditions and  no  others: 

A. — The  building  needful   to  transact   its  business. 

B. — Land  mortgaged  to  it  in  good  faith  to  secure  debts  previously 
contracted. 

C. — Land  conveyed  to  it  in  satisfaction  of  debts  previously  con- 
tracted in  the  course  of  business. 

D. — Land  purchased  under  sales  ordered  by  courts  in  order  to 
secure  debts  due  to  the  bank. 

E. — In  the  last  three  cases  the  real  estate  cannot  be  held  beyond 
five  years. 

The  rate  of  interest  which  a  bank  may  take  on  any  note,  bill  of 
•exchange,  or  other  evidence  of  debt  is  the  rate  permitted  by  the 
laws  of  the  State  or  Territory  where  the  bank  is  located. 

Every  bank  in  sixteen  of  the  principal  cities  of  the  United  States 
must  keep  on  hand  always  in  lawful  money  as  a  reserve  fund, 
twenty-five  per  cent,  of  the  amount  of  its  deposits;  and  the  banks 


THE  NATIONAL   BANKING   SYSTEM.  13. 

in  other  places  must  keep  on  hand  fifteen  per  cent,  of  their  de- 
posits. The  banks  last  mentioned,  however,  may  keep  three-fifths 
of  their  reserve  on  deposit  with  such  of  the  National  banks  as 
may  be  selected  by  them,  approved  by  the  Comptroller  of  the 
Currency,  and  doing  business  in  any  of  eighteen  specified  principal 
cities  of  the  United  States. 

National  banks  in  any  of  the  sixteen  cities  excepting  New  York, 
may  keep  one-half  of  the  required  twenty-five  per  cent,  reserve  on 
deposit  in  the  City  of  New  York. 

Whenever  this  reserve  of  twenty-five  per  cent,  for  one  class  of 
banks  and  fifteen  per  cent,  for  the  other,  falls  below  that  amount, 
the  bank  can  make  no  new  loans,  except  by  purchasing  or  discount- 
ing bills  of  exchange  payable  at  sight,  nor  make  any  dividend  until 
the  requisite  proportion  of  reserve  to  circulation  and  deposits  has 
been  restored. 

They  cannot  make  loans  on  the  security  of  their  own  stock, 
except  to  prevent  a  loss  on  a  debt  previously  contracted,  nor  can 
they  pledge  their  own  notes  of  circulation  for  the  purpose  of  get- 
ting money  to  pay  in  their  capital  stock. 

They  are  also  subject  to  examination  by  officers  appointed  by  the 
Government. 

The  banks  must  make  reports  to  the  Comptroller  of  the  Cur- 
rency according  to  the  forms  which  he  prescribes,  exhibiting  in  de- 
tail the  resources  and  liabilities  of  the  associations  at  the  close  of 
business  on  any  past  day  specified  by  him.  The  Comptroller  is 
required  to  call  for  not  less  than  five  such  reports  during  each 
year.  These  reports  must  be  verified  by  the  oath  of  the  president 
or  cashier  and  attested  by  the  signatures  of  at  least  three  of  the 
directors. 

In  addition  to  the  reports  mentioned  above,  each  association  is 
required  to  make  a  sworn  report  within  ten  days  after  the  declar- 
ation of  any  dividend,  of  the  amount  of  such  dividend,  and  the 
amount  of  the  net  earnings.  In  order  to  enable  the  Treasurer  to- 
assess  the  duties,  each  association  is  required  to  make  a  sworn  re- 
turn to  the  Treasurer  of  the  United  States  of  the  average  amount 
of  its  notes  in  circulation. 

The  Comptroller  employs  district  agents  to  examine  from  time 
to  time,  usually  once  a  year,  the  affairs  and  assets  of  the  several 
banks.  For  this  service  a  stipulated  charge  is  assessed  upon  the 
bank. 

The  charters  of  many  National  banks  expired  in  1882.  On  the 
twenty-fifth  of  February,  1883,  the  charters  of  297  more  expired. 
On  the  twelfth  of  July,  1882,  Congress  provided  for  their  renewal. 
Many  of  the  National  banks  are  now  existing  under  this  law.  The 
same  period  of  life  is  given  to  them  as  was  given  before — twenty 
years. 


14  PRACTICAL    BANKING. 


CHAPTER  IV. 
STATE    BANKS. 

Although  2,589  banks  (April  24)  are  in  the  National  system, 
nearly  eleven  hundred  banks  are  flourishing  under  State  regulations. 
These  in  most  cases  existed  before  the  enactment  of  the  National 
banking  law.  They  declined  to  change,  though  they  were  obliged  to 
retire  their  circulation.  A  larger  number  of  these  banks  are  located 
in  Missouri  than  in  any  other  State.  At  the  beginning  of  the  year, 
1884,  153  State  banks  existed  there;  New  York  had  the  next  largest 
number,  98,  while  Pennsylvania  had  only  one  bank  less.  In  Iowa 
there  were  78,  in  California  71,  in  Kentucky  66,  and  in  Kansas  50 
Michigan  had  36,  Ohio  35,  Virginia  43,  Wisconsin  38,  Nebraska 
and  Minnesota  each  32.  Other  States  had  a  much  smaller  num- 
ber. 

The  Government  imposed  a  tax  of  ten  per  cent,  on  the  circulation 
of  the  State  banks,  which  took  effect  on  the  first  of  July,  1866,  under  an 
amendment  to  the  law  creating  the  National  banking  system.  This  rate 
was  too  high  to  allow  any  profit  on  the  State  bank  circulation,  and 
consequently  it  was  withdrawn.  Indeed  the  object  of  the  law  was  to 
expel  it,  in  order  to  make  room  for  the  circulation  of  the  National 
banks.  In  other  respects,  however,  the  State  banks  are  conducted  as 
they  were  before  the  creation  of  the  National  banking  system.  But  the 
internal  mechanism  of  a  State  and  National  bank  is  quite  the  same, 
and,  therefore,  in  describing  the  methods  of  conducting  a  discount 
bank,  no  distinction  need  be  kept  in  mind  between  a  National  and 
State  bank.  The  former  alone  issues  circulating  notes,  and  the 
mode  of  doing  this  will  be  explained  more  fully  hereafter.  The 
main  function  of  receiving  deposits  and  of  loaning  them  is  per- 
formed in  essentially  the  same  way  by  all  banks.  Of  course,  there 
are  minor  differences;  every  bank  has  some  ideas  of  doing  busi- 
ness that  are  peculiar  to  it,  but  it  may  be  truly  said  that  the 
main  features  of  the  banking  business  are  the  same  throughout 
the  country.  The  greatest  differences  exist  between  banks  in  the 
large  cities  and  the  small  places,  and  these  will  be  explained  in 
their  proper  place. 

State  banks  possess  some  advantages,  in  the  opinion  of  some 
bankers,  that  are  worth  mentioning : 


STATE   BANKS.  15 

1.  They  are  not  examined  so  critically;  in   some  cases  are  not  re- 
quired to   make  returns  to   State  officials,   and   in   no  case  are  such 
full  returns  required  as  the  National  law  requires  to  be  made.    Yet 
the    numerous    requirements    by  the  Government  strengthen   public 
confidence     in     the    banks,    and     probably    the    majority    of    bank- 
ing officials  would    not  have   them    removed    or    lessened    if    they 
could.     Not  all  think  so,  however ;   hence  some  banks  remain  under 
the  shadow  of  the   State  instead   of    the   Nation,  because  they  are 
watched   less    closely  and    can   do  things   which   would   not  be  per- 
mitted if  they  were  National  banking  institutions. 

2.  There   is  another   advantage  which    State   banks   claim  to  pos- 
sess over  their  National   rivals.     They  can  certify  checks   in  excess 
of  the  amount  which  the  depositor  may  have  at  the  moment  of  cer- 
tifying.   The  National  banks  are  expressly  forbidden  to  do  this.     In 
several  cases  they  disregarded  the  law,  but  the  Comptroller  of  the 
Currency    dealt     with    the    offenders    so    severely    that    the    banks 
which    were    the    most    desirous    of    continuing   the    practice    with- 
drew and  reorganized  as   State   banks.     The  institutions  that  with- 
drew were   located   in    New    York    City,    and   they  maintained   that 
whatever  advantages  they  would  gain  if  they  continued  to  exist  as 
National  banks  would    not    equal    their    losses    if    the    practice    of 
over-certifying  could   not  be  continued.     Wishing  to  continue  it  and 
not   infringe  the  law,  they  became   State  banks,  and  as  such   could 
continue  this  objectionable  practice  without  legal  hindrance. 

The  banking  laws  of  the  States  possess  many  variations,  and  we 
have  not  space  for  even  an  abridgement  of  them.  As  no  State 
banks  issue  circulating  notes,  all  regulations  pertaining  to  that  sub- 
ject are  dormant.  The  main  provisions  of  the  banking  law  of  New 
York  are  similar  to  those  of  the  National  Bank  Act,  which  were 
described  in  the  previous  chapter. 


l6  PRACTICAL    BANKING. 


CHAPTER  V. 
HOW  BANKS  ABE  ORGANIZED  AND  ISSUE  NOTES. 

The  subject  of  this  chapter  was  so  well  handled  by  a  cashier 
of  a  National  Bank  several  years  ago,  at  a  meeting  of  the  Amer- 
ican Bankers'  Association,  that  his  paper  may  fitly  be  incorporated 
into  our  work. 

Let  us  start  a  bank  in  a  New  England  city.  Some  stormy  winter 
afternoon  a  half  dozen  men  are  sitting  around  a  stove  in  a  counting- 
room  on  Commercial  Street.  They  have  discussed  the  weather  and 
their  neighbors,  have  whittled  the  chairs,  have  told  a  few  stories, 
and  have  listened  to  the  eloquence  of  a  teamster  who  dropped  in, 
as  he  cursed  the  banks  and  ventilated  some  new  theory  of  finance, 
By  the  way,  says  Mr.  A,  it  seems  to  me  that  if  we  had  another 
bank  here,  we  could  have  an  easier  money  market,  and  could  get 
better  accommodation.  Why,  I  took  up  a  note  the  other  day,  to 
my  bank,  and  they  didn't  discount  it,  though  with  my  own  eyes  I 
saw  the  clerk  put  a  discount  on  the  little  book  for  old  Sykes,  and 
I  reckon  my  note  is  as  good  as  his.  The  other  members  of  the 
crowd,  being  well  aware  that  Mr.  A  is  a  habitual  growler,  as  well  as 
a  persistent  borrower  of  $150  a  day  to  make  his  checks  good,  and 
an  inveterate  swapper  of  checks,  do  not  wonder  at  the  obstinacy 
of  the  bank.  In  a  few  minutes  Mr.  A  goes  out,  and  in  walks  Mr. 
B,  who  is  a  well-known,  honorable,  retired  merchant.  The  subject 
is  renewed,  and  Mr.  B  remarks  that  he  has  had  some  talk  of 
seeing  some  of  the  merchants  and  inquiring  how  they  would  feel 
about  having  a  new  bank.  Some  variety  of  opinion  is  expressed. 
But  Mr.  B  at  length  says  that  he  has  determined  to  try  it  on,  if  he 
can  find  the  right  men  to  go  with  him.  He  wants  a  grocer  and  a 
lumber  dealer,  and  a  retired  man,  like  himself,  and  one  or  two 
more  good  men,  to  make  up  a  board  of  directors.  He  says  that 
there  is  plenty  of  money  seeking  investment,  and  that  with  good 
management  the  stock  will  be  worth  $125  in  three  years. 

In  the  course  of  a  week  or  so  Mr.  B  has  selected  five  men  who 
will  sign  a  paper  subscribing  for  at  least  ten  shares  each  of  a  new 
bank,  to  be  called  the  National  Bank  of  Commerce,  to  be  located 
in  Portland,  Maine.  They  write  to  Washington,  to  an  officer  of  the 
Treasury  Department,  called  the  Comptroller  of  the  Currency.  He 


HOW   BANKS   ARE  ORGANIZED   AND   ISSUE  NOTES.  \J 

makes  inquiries  about  the  needs  of  Portland  and  the  character  of 
the  men,  and  at  length  sends  some  blanks  for  the  signatures  of 
the  subscribers  to  the  proposed  capital  stock  of  $  250,000.  He  re- 
minds the  gentlemen  that  the  law  must  be  strictly  followed,  that 
the  gentlemen  who  are  to  be  directors  must  each  own  absolutely 
at  least  ten  shares  of  the  stock,  and  that  at  least  one-half  of  the 
money  must  be  paid  in  before  he  can  grant  them  any  rights.  Mr. 
B  takes  his  paper  around  among  his  friends,  and  in  a  few  weeks  he 
has  the  amount  subscribed.  Certain  preliminary  steps  are  now 
taken.  A  room  is  hired,  a  good  vault  built,  and  the  subscribers 
are  called  together  to  choose  five  directors.  A  cashier  is  selected. 
There  are  many  applicants  for  this  office,  but  the  directors  choose 
Mr.  Perkins,  because  he  has  been  in  another  bank  for  several  years, 
has  borne  a  good  reputation  and  knows  his  business. 

The  papers,  duly  signed  and  sworn  to,  have  been  sent  to  Wash- 
ington for  approval.  They  come  back  in  a  week,  with  a  big  seal, 
and  a  certificate  that  must  be  published  in  some  local  paper,  show- 
ing that  the  bank  is  recognized  by  the  powers  that  be.  One  of  the 
stationers'  houses  has  subscribed  to  the  stock,  and  so  they  are 
making  the  new  books.  The  cashier  says  they  must  hurry  up  first 
with  a  stock  journal  and  stock  ledger,  as  the  money  is  to  be  paid 
in  at  once,  and  he  must  have  these  books.  That  old  growler,  Mr. 
A,  comes  round  before  the  bank  is  fairly  started,  and  wants  to  hire 
$500,  on  four  months,  with  a  poor  indorser.  When  he  is  told  that 
they  can't  lend  any  money  till  they  get  under  way,  he  remarks  that 
he  thought  this  bank  was  going  to  help  our  merchants,  and  he 
would  like  to  know  what  banks  are  for.  The  teamster,  of  whom  we 
spoke  a  few  moments  ago,  said,  as  Mr.  A  returned  to  his  office, 
that  he  could  tell  what  banks  are  for :  "  Yer  see,  they  are  jest  to 
skin  us  poor  fellows  who  haven't  got  nothing."  Presently,  how- 
ever, our  new  bank  has  all  of  its  $  250,000  paid  in.  The  directors 
are  called  upon  to  decide  whether  they  will  issue  circulating  notes 
or  not.  And  for  fear  that  some  of  you  present  to-night  may  think 
that  banks  are  compelled  to  issue  notes,  and  that  their  whole  profit 
is  derived  from  the  profit  upon  the  circulation,  I  will  at  this  point 
explain  a  few  things. 

The  business  of  banking  does  not,  of  necessity,  include  the  func- 
tion of  issuing  bank  notes.  The  privilege  of  issuing  notes  is 
granted  by  the  State  or  the  Nation,  as  the  case  may  be;  but,  lor 
the  privilege,  certain  taxes  have  to  be  paid  to  the  party  granting 
the  permission.  In  addition  to  the  tax,  the  expense  of  handling 
the  notes,  the  expenses  of  the  redemption  of  the  same,  the  express 
charges,  etc.,  make  it  a  serious  question  with  many  banks  whether 
it  pays  to  issue  notes.  The  fact  is,  though  it  is  not  often  stated, 
that  a  very  considerable  number  of  large  and  well-managed  banks 
long  ago  gave  up  their  circulation,  finding  that  it  did  not  pay.  In 


18  PRACTICAL    BANKING. 

places  like  Portland,  where  the  banking  capital  is  not  excessive,  I 
think  that  a  fair  profit  can  be  made  if  money  is  worth  five  and 
a  half  per  cent,  the  year  through.  But  the  banks  here  would 
make  a  respectable  living  if  they  had  no  circulation. 

Another  mistake  of  the  same  kind  is,  the  claim  that  the  banks 
make  large  amounts  out  of  the  lost  bills.  I  have  heard  it  said  that 
fully  a  quarter  part  of  all  that  is  issued  never  returns,  and  is 
consequently  saved  by  the  bank.  Now,  this  is  a  great  mistake, 
for,  in  the  case  of  National  banks  the  Government,  and  not  the 
bank,  gets  all  the  benefit.  Even  in  the  case  of  the  State  banks  the 
proportion  of  missing  bills  is  very  small.  I  was  once  connected 
with  a  State  bank  that  had  a  circulation  for  several  years  of  more 
than  half  a  million  of  dollars.  Its  bills  went  all  over  New  England 
and  into  the  West  and  Canada.  When  our  Maine  soldiers  went 
to  the  front  they  were  paid  in  many  cases  in  the  notes  of  this 
bank.  Those  notes  went  thus  into  many  Southern  States,  passed 
through  many  battles,  were  found  in  soldiers'  pockets  in  the  hospi- 
tals and  on  the  field.  Now,  you  would  say  that  there  must  have 
been  a  large  loss  of  money  in  this  particular  case.  Well,  the  notes 
keep  straggling  back  to  Portland  even  to  this  day ;  they  have  al- 
ways been  paid,  and  thay  always  will  be.  An  old  lady  dies,  and  a 
crisp,  clean  bill  is  found  tucked  away  in  her  pocketbook.  Now  and 
then  one  turns  up  from  down  south  or  the  extreme  west,  but  to-day 
there  is  only  about  $  1,900  outstanding  of  all  the  many  notes 
that  were  issued  by  this  one  bank  that  had  so  peculiar  a  circulation. 
Not  long  ago  three  clean  five-dollar  notes  were  presented  for  re- 
demption. They  had  been  hidden  away  in  an  old  lady's  wallet; 
perhaps  she  had  kept  them  to  pay  her  funeral  bills.  Eighteen 
years,  at  least,  had  passed  since  these  bills  were  paid  out.  We  oc- 
casionally read  of  some  drunken  swell  who  lights  his  pipe  or  cigar 
with  a  dollar  bill ;  but  I  always  think,  when  I  read  that  story  as 
it  turns  up  periodically,  that  the  bill  in  question  was  a  poor  coun- 
terfeit, laid  by  for  an  emergency  of  brag  and  show. 

Having  cleared  up  these  errors  let  us  go  back  to  our  new  bank 
that  we  left  with  $250,000  paid  in.  After  discussion,  the  directors 
decide  in  favor  of  issuing  notes.  What  is  the  process?  You  under- 
stand, of  course,  that  all  National  bank  notes  are  based  upon  a  secur- 
ity deposit  made  by  the  bank  with  the  Treasury  Department  in  Wash- 
ington ;  that  is  to  say,  for  every  §  1,000  United  States  bond  deposited, 
the  Government  will  grant  $  900  in  new  bills  to  the  bank.*  No  bank, 
however,  can  have  more  bills  than  its  capital,  many  do  not  have 
so  much;  and,  as  has  been  previously  said,  some  banks  prefer  to 
have  no  circulation  at  all.  Our  new  bank  has  $  250,000  capital ;  and, 
taking  up  the  newspaper,  the  managers  are  not  consoled  by  the 
quotation  of  123  for  a  four-per-cent.  bond.  But,  to  get  their  circu- 

*  See  provisions  of  National  Banking  Law,  Chapter  III.,  page  12. 


HOW   BANKS   ARE  ORGANIZED   AND   ISSUE  NOTES.  19 

lation  they  must  first  deposit  their  bonds.  So  they  easily  can  see 
that  they  cannot  buy  more  than  $220,000  of  four-per-cent.  bonds 
with  their  $  250,000.  In  other  words,  $  30,000  is  sunk  in  premiums 
for  which  they  have  nothing  to  show.  Or,  to  put  it  in  another  way 
they  have  spent  $30,000  for  premiums  before  they  have  earned  a 
dollar.  An  order  is  given  to  a  broker  in  New  York  to  buy  $220,- 
ooo  in  United  States  bonds,  drawing  four  per  cent,  interest.  The 
broker  telegraphs  back  that  he  has  bought  at  123.  He  has  bought 
registered  bonds — that  is,  bonds  that  have  no  coupons  or  semi-an- 
nual interest  warrants,  but  are  certificates  of  ownership  of  a  certain 
quantity  in  the  four-per-cent.  loan  of  the  United  States.  These 
certificates  or  bonds  are  in  sizes  of  $  10,000  in  this  case,  and  are 
payable  to  some  party  who  indorses  them  over  in  blank,  when  they 
are  sold.  The  interest  on  the  bonds  comes  from  the  Treasury  De- 
partment to  the  owners  by  check  through  the  mails,  in  quarterly 
payments. 

Now  that  the  bonds  are  bought,  and,  of  course  paid  for,  they 
are  sent  to  the  Treasury  Department  at  Washington  to  be  lodged 
with  the  Treasurer  of  the  United  States  to  secure  such  an  amount 
of  circulating  notes  as,  under  the  law,  he  is  authorized  to  issue  to 
the  new  bank.  This  officer  issues  a  certificate  that  he  has  had 
$220,000  in  United  States  four-per-cent.  bonds  converted  into 
bonds  bearing  the  name  of  the  United  States  in  trust  for  our  new 
bank ;  that  is,  he  holds  the  bonds  as  security  for  the  payment  of 
the  notes  that  are  to  be  issued  by  the  joint  act  of  the  Govern- 
ment and  the  association.  Whenever  the  bank  surrenders  the  notes 
or  an  equivalent,  then  the  shareholders  can  have  their  bonds  trans- 
ferred to  them  again.  But,  so  long  as  the  bank  owes  for  its  notes, 
so  long  must  the  bonds  remain  in  the  pigeon-holes  of  the  big 
vault  of  the  Treasurer  of  the  United  States,  all  done  up  nicely,  and 
lettered  and  labeled,  so  that  at  any  moment  the  agent  of  the  bank 
can  put  his  hand  on  them  and  see  that  they  are  safe.  The  Treas- 
urer sends  a  document  to  the  Comptroller  of  the  Currency,  stating 
that  he  holds  the  bonds,  and  the  Comptroller  issues  an  order  for 
printing  the  amount  of  notes  authorized  by  law,  which  is  ninety 
per  cent,  of  the  deposit,  the  other  ten  per  cent,  being  left  as  a 
margin  in  case  of  a  depreciation  of  the  bonds.  So  the  bank  has, 
in  the  first  instance,  sunk  $  30,000  in  premium  on  its  bonds,  and 
now  ties  up  ten  per  cent,  more  to  make  the  public  absolutely  safe 
when  they  take  the  bills  of  that  bank.  Only  $  198,000  is  allotted  to 
our  new  bank.  This  amount  is  what  is  called  the  circulation  of  the 
bank. 

The  blanks  come  along  in  a  few  weeks,  and  though  the  of- 
ficers may  think  it  very  pretty  to  see  their  names  on  a  bank  bill, 
yet  before  they  have  signed  a  quarter  of  the  pile,  their  hands  ache 
and  they  grow  sick  of  their  own  names.  But  the  bills  must  all  be 


20  PRACTICAL    BANKING. 

signed.  Then  they  are  chopped  up,  and  finally  make  glad  some- 
body's eyes.  For  the  privilege  of  issuing  these  notes,  the  banks 
pay  to  the  Government  one  per  cent,  a-year  tax  upon  the  average 
amount  in  circulation.  Besides  this  tax,  the  banks  pay  the  expenses 
of  an  office  in  Washington,  where  the  notes  of  all  of  the  banks  are 
received,  sorted,  sent  home  for  redemption,  or,  if  too  much  defaced, 
burned  and  exchanged  for  clean  notes.  The  expenses  of  this  office 
for  a  bank  of  $  250,000  capital  would  be,  perhaps,  $  200  per  annum. 
Added  to  this  must  be  the  express  charges  from  Washington  to  the 
home  of  the  bank.  Every  week  or  two  a  package  of  bills  is  sent  home 
for  redemption.  The  cost  of  this  service  may  be  $75  more.  Then, 
again,  the  law  provides  that  an  amount  equal  to  five  per  cent,  of 
the  circulation  shall  at  all  times  be  kept  with  the  Treasurer  of 
the  United  States,  as  a  fund  for  paying  these  constant  redemp- 
tions ;  so  that  the  Treasurer  gets  his  pay  for  the  redeemed  bills 
before  they  start  from  Washington,  and  this  amount  has  to  be 
kept  constantly  good  by  frequent  remittances.  You  notice,  there- 
fore, that  five  per  cent,  of  our  $198,000,  or  $9,900,  is  tied  up, 
dead  and  profitless,  in  Washington,  all  the  time ;  so  that  really  all 
the  bank  has  to  use  of  its  $  250,000  capital  in  this  direction  is 
$188,100.* 

There  is  another  side  to  this  story,  also.  When  a  bank  obtains 
circulation  and  loans  the  money  derived  from  it  in  a  community, 
the  people  in  the  region  are  helped.  The  wheels  move  round  a 
little  faster,  and  I  do  not  know  but  that  a  bank  is  entitled  to  some 
share  of  the  profit,  if  it  takes  all  the  risks  of  men's  business,  their 
tricks,  their  honesty,  and  their  frequent  failures.  Very  certain  it  is, 
that  if  the  banks  did  not  issue  their  notes  the  people  could  not 
issue  their  notes  as  they  do  at  present.  We  will  now  leave  this 
branch  of  banking,  and  see  how  our  National  Bank  of  Commerce 
makes  money  in  another  direction,  and  at  the  same  time  serves 
the  people.  I  refer  now  to  the  loaning  of  money.  What  money 
has  a  bank  to  loan?  i.  It  has  its  capital.  But,  in  the  case  we 
have  supposed,  instead  of  loaning  its  $250,000  paid-in  capital,  it 
will  only  have  $188,100  to  loan,  which  is  the  amount  of  circulat- 
ing notes  received  from  Washington,  in  exchange  for  its  bonds 
bought  with  all  of  its  capital.  2.  The  bank  really  loans  its  whole 
capital  to  the  Government  by  its  act  of  buying  $250,000  bonds,  draw- 
ing four  per  cent,  interest,  so  that  the  bank  receives  four  per  cent. 

*  I  mention  these  facts  to  show  that  the  banks  do  their  share  in  paying  taxes,  and  in  mak- 
ing the  people  absolutely  secure  in  their  funds,  as  well  as  to  point  out  that  there  are  some 
serious  outs  in  what  many  people  think  is  a  huge  monopoly.  I  shall  not  contend,  however, 
that  the  banks  do  not  make  money  out  of  their  circulation.  They  do.  But  I  think  that  they 
fully  pay  for  their  privilege.  It  is  not  possible  for  a  new  bank  to  start  to-day  and  buy  bonds 
at  present  prices,  pay  taxes  and  do  an  honest  business,  and  make  much  money  out  of  its  circu- 
lation. I  would  myself  to-day,  as  things  are,  run  a  bank— a  new  bank — as  quickly  without 
circulation  as  with  it,  if  the  institution  were  located  in  a  city. 


HOW   BANKS   ARE  ORGANIZED   AND   ISSUE   NOTES.  21 

on  this  amount,  as  well  as  what  it  can  make  on  its  circulation. 
3.  It  has  its  deposits  to  loan ;  that  is  to  say,  after  reserving  what 
is  a  prudent  amount  for  the  ordinary  calls  of  its  depositors,  it  can 
invest  the  balance  in  such  a  manner  that  it  can  be  relied  upon  in 
case  of  need. 

Experience  teaches  the  bank  manager  how  stable  or  how  unreli- 
able his  balances  may  prove.  In  an  old  and  well-established  bank, 
perhaps  two-thirds  of  the  deposits  may  safely  be  loaned,  on  various 
lengths  of  time  and  various  kinds  of  securities.  In  a  new  bank, 
or  in  a  poor  bank,  the  officer  will  not  be  surprised  if  his  balances 
are  as  unstable  as  his  own  power  to  aid  his  dealer  in  an  emer- 
gency. These  three,  then,  are,  in  the  main,  the  sources  of  means 
for  a  bank  to  loan  and  make  money  : 

i.  The  capital.     2.  The  circulation.     3.  The  deposits. 

Let  us  next  see  how  the  loans  are  made.  What  can  our  Na- 
tional Bank  of  Commerce  loan  upon  ?  In  walks  Mr.  H.  He  says 
he  wants  to  hire  $  2,000,  and  will  give  as  security  his  son  Bill  and 
his  farm.  He  is  told  that  the  National  Bank  of  Commerce  can- 
not loan  on  real  estate,  as  the  law  practically  prohibits  it.  Where- 
upon Mr.  H  remarks  that  he  would  like  to  know  of  what  earthly 
use  banks  are  if  a  man  can't  raise  money  on  a  good  farm  and  on 
his  son  Bill's  backing.  But  he  is  reminded  that  farms  won't  pay 
debts,  and  that  in  loaning  money  belonging  to  other  people  care 
must  be  had  that  the  money  can  be  easily  forthcoming  when  the 
debt  is  due.  Mr.  B  presents  a  note  by  a  man  up  in  Baldwin,  in- 
dorsed by  the  man's  wife  and  by  Mr.  Jones  of  the  same  town.  In- 
quiry fails  to  bring  out  the  fact  that  Mr.  Jones  and  the  rest  of 
the  Baldwin  family  have  any  intention  of  paying  the  note  when 
due;  but  shows  that  they  want  to  hire  the  money  to  help  build 
up  a  cheese  factory.  Now,  while  a  cheese  factory  is  a  glorious  in- 
stitution, yet  it  is  not  the  thing  for  a  bank  to  loan  its  money  on. 
In  other  words,  banks  are  not  established  to  make  permanent  loans, 
but  to  buy  notes  on  short  time,  given  for  the  actual  purchase  or 
sale  of  goods. 

In  country  towns  the  practice  differs.  For  instance,  if  there  was 
a  bank  in  Bethel,  in  this  State,  the  drover  would  present  a  note 
signed  by  himself  and  three  neighbors,  and  would  want  to  hire  for 
three  months  $2,000,  so  that  he  might  go  through  the  towns  pick- 
ing up  cattle,  and  pay  his  note  when  he  got  through  the  operation. 
So,  also,  another  man  would  hire  money  outright  to  buy  hay  and 
dried  apples,  and  still  another  would  want  a  thousand  or  two  to  fit 
out  a  winter  logging  crew.  Back  of  all  these  transactions  is  the 
apparent  ready  ability  of  the  hirers  to  pay  their  debts  out  of  the 
commodities  dealt  in.  The  money  is  not  tied  up  in  a  farm  or  a 
cheese  factory  as  a  permanent  investment. 

In  cities  the  trader  brings  to   the   bank   a   batch    of    notes  given 


22  PRACTICAL    BANKING. 

for  goods  sold  to  country  traders.  There  is  a  value  received  in 
every  note.  Flour,  molasses,  sugar,  oil,  pork,  have  passed  out  of  the 
store  in  the  city,  and  the 'note  expresses  the  value.  The  dealer  in 
the  city  wants  to  use  his  capital  over  again,  and  so  sells  his  notes 
to  the  bank.  The  bank  buys  the  notes,  and  gives  the  dealer  a 
credit  for  the  same  upon  his  bank  book. 

In  New  York  and  some  of  the  larger  cities  still  another  practice 
prevails.  Merchants  have  a  way  of  making  their  own  notes  and 
selling  them  outright  at  the  price  of  money  at  the  time.  This  can 
only  be  done  by  the  strongest  houses.  Other  houses  go  to  the 
bank  and  say,  you  have  for  collection  on  our  account  a  consider- 
able number  and  amount  of  notes;  now,  hold  these  as  security,  and 
loan  us  a  certain  amount  on  our  note.  This  is  all  legitimate,  as 
you  will  see  that  the  bank  has  abundant  security  on  hand  in  a 
form  that  can  easily  pay  a  loan. 

Still  another  method  is  that  used  largely  in  the  Western  States.  I 
refer  to  the  buying  and  selling  of  exchange  on  eastern  cities.  A 
man  picks  up  a  customer  for  200  barrels  of  flour.  The  flour  is 
ground  in  Minnesota,  for  instance.  As  soon  as  it  is  ready  for  deliv- 
ery he  puts  it  aboard  the  cars  and  gets  a  railroad  receipt  or  bill  of 
lading,  showing  that  200  barrels  of  flour  have  been  put  into  such 
cars,  shipped  to  Mr.  Jackson,  at  Portland.  The  bank  in  Minnesota 
says  that  he  can  pin  his  bill  of  lading  to  the  draft  he  is  about  to 
make  on  Mr.  Jackson,  and  the  bank  will  purchase  the  bill.  The 
bank  does  not  depend  on  Mr.  Jackson's  credit,  for  they  instruct 
their  correspondent  in  Portland  not  to  give  up  the  bill  of  lading 
until  they  get  their  money.  This  custom  is  confined  to  the  West 
and  South,  and  arises'  from  their  large  sales  of  produce  in  the 
East. 

The  profit  made  by  banks  on  their  loans  is  the  interest  for  the 
time  that  the  note  or  draft  has  to  run  from  the  day  it  is  bought 
by  the  bank  till  it  matures.  Who  gets  the  profit  ?  The  stock- 
holders, of  course.  The  capital  is  divided  up  into  shares,  generally 
of  $  loo  each.  Twice  a  year  the  directors  look  at  the  balance  sheet 
and  say  that,  after  paying  the  salaries  and  the  taxes,  they  can  pay 
a  certain  amount  to  the  stockholders.  But  one  old  director  remarks 
that  they  must  first  add  to  their  surplus  account  an  amount  that 
the  law  prescribes  before  they  can  divide.  The  idea  of  the  bank- 
ing law  is  to  make  the  public  safe ;  so  it  is  wisely  provided  that 
until  the  surplus  of  a  bank  is  fully  twenty  per  cent,  of  its  capital 
no  dividend  shall  be  paid  until  at  least  one-tenth  of  its  profits  shall 
be  added  to  the  surplus. 

There  is  another  little  trouble  that  sometimes  prevents  the  stock- 
holder from  getting  a  dividend  as  he  expects.  A  bank,  like  a  mer- 
chant, loses  money,  sometimes,  after  exercising  the  greatest  care  and 
the  best  judgment,  and  saying  "  No,  no,  no,"  over  and  over  again. 


HOW   BANKS   ARE  ORGANIZED   AND   ISSUE  NOTES.  23 

Sometimes  a  man  dies,  and  everybody  is  surprised  to  learn  that 
the  estate  cannot  pay  its  debts.  The  bank  holds  his  paper  with 
only  a  fair  indorser.  This  fair  indorser  can't  respond  to  so  much 
calamity,  and  so  he  fails.  The  bank  settles  off  and  loses  fifty  per 
cent,  of  its  debt.  Or,  a  fire  burns  a  man's  store  and  stock,  and  he 
is  inadequately  insured ;  the  bank  loses  again.  Or,  what  is  worse, 
and  what  makes  a  bank  man  mad  (and  justly  so,  too!)  is  when  a 
firm  lie,  telling  all  sorts  of  stories  about  their  business  and  profits 
and  expenses,  and  the  community  wake  up  some  fine  morning  and 
find  the  bubble  collapsed  !  ten  cents  on  a  dollar  and  nobody  to  blame. 

The  feeling  of  reciprocity  between  banks  and  their  dealers  ought 
to  be  encouraged.  The  banker  is  interested  in  the  success  of 
his  dea^r.  He  sees  a  great  many  accounts,  and  he  can  be  of  much 
aid  to  tnu  merchants  in  exposing  tricks  and  extended  credits,  and 
the  peculiar  ways  of  men  who  deal  with  the  merchants.  The  mer- 
chant should  feel  that  the  banker  is  his  friend,  that  if  he  criticises 
it  is  from  good  motives.  For  instance,  here  is  a  young  man  just 
starting  in  the  wholesale  grocery  business.  He  is  ambitious  to  do 
all  the  business  that  he  can,  and  probably  tries  to  do  more  than 
he  ought  to.  In  his  anxiety  he  strikes  out  for  new  accounts,  and 
sells  some  country  traders  very  large  bills.  He  takes  their  notes 
and  carries  them  to  his  bank  for  discount,  where  he  is  kindly  told 
that  he  is  selling  such  a  man  too  much  for  his  good,  and  the 
bank  declines  his  paper.  Now,  the  banker  notices  that  another  con- 
cern is  working  hard  to  shove  that  customer  off,  and  this  ardent 
young  man  may  get  a  big  load  before  he  is  aware  of  it.  I  can  re- 
call very  many  cases  where  merchants  would  have  saved  many  bad 
debts  if  they  would  but  have  taken  a  hint  kindly  given. 

Young  merchants  especially  ought  not  to  attempt  sharp  prac- 
tices on  their  banks.  Fictitious  balances,  or  balances  arranged  so  as 
to  look  well  the  last  day  of  a  month,  and  exchanged  checks,  and 
a  thousand  and  one  little  sneaking  ways,  only  hurt  a  merchant  and 
destroy  his  credit.  The  banker's  ledger  generally  shows  a  continu- 
ous balance,  varying  with  each  transaction  ;  averages,  and  not  "  put 
up  jobs,"  show  the  value  of  an  account.  My  judgment  is,  that 
there  is  now  but  very  little  "shaving"  and  "grinding"  exercised  by 
the  bank  towards  the  borrower.  Nor  is  there  any  disposition  of 
this  kind  in  respectable  quarters.  Money  is  an  article  of  merchan- 
dise ;  it  has  its  price ;  its  price  varies  like  the  price  of  sugar  and 
flour.  Firms  of  undoubted  credit  can  hire  money  lower  than  can 
some  others  of  lower  credit,  just  as  ready  money  and  a  sharp  buyer 
can  buy  100  barrels  of  flour  cheaper  than  a  man  who  purchases 
on  four  months  and  is  slow  pay.  It  is  true  that  banks  do  not 
discount  all  the  paper  that  is  brought  to  them.  Nor  are  they 
bound  to.  They  have  the  right  of  choice  as  much  as  a  merchant 
has  whether  he  will  trust  out  a  bill  of  goods. 


24  PRACTICAL    BANKING. 


CHAPTER  VI. 
THE    PBESIDENT. 

The  president  is  the  chief  executive  officer  of  the  bank,  and 
presides  at  the  meetings  of  the  Board  of  Directors,  but  is  not 
necessarily  the  business  head  or  manager  of  the  institution.  Some 
banks  have  a  vice-president.  The  vice-president  in  the  absence  of 
the  president  assumes  the  functions  of  the  latter. 

In  legal  matters  the  president  must  sign  documents  conveying 
real  estate,  and  with  the  cashier  must  sign  certificates  of  stock 
issued  to  shareholders,  and  the  circulating  notes.  He,  or  the  cashier, 
may  verify  the  various  reports  required  by  the  National  Banking  law 
to  be  made  to  the  Comptroller,  and  must  certify  to  that  officer  the 
payment  of  each  installment  of  stock.  He  cannot  act  as  proxy  at 
meetings  of  the  shareholders. 

He  is  not  required  to  give  a  bond  to  secure  the  bank  in  the 
event  of  not  faithfully  performing  his  duties,  but  all  the  officials 
below  him  give  such  security.  It  is  supposed  that  his  large  pecu- 
niary interest  in  his  bank,  and  his  well-known  standing  in  the  com- 
munity where  he  resides,  will  prove  an  ample  guaranty.  Of  course, 
bank  presidents  are  sometimes  recreant  to  their  trusts,  but  happily 
not  often.  It  is  well  to  believe  there  are  persons  living  in  every 
community  whose  word  is  as  good  as  their  bond,  and  for  them  to 
give  such  an  obligation,  therefore,  is  superfluous. 

The  salary  of  a  bank  president  varies  from  a  very  small  sum  to 
fifteen  thousand  dollars  a  year.  When  his  duties  are  very  few,  and 
only  a  slight  portion  of  his  time  is  devoted  to  the  affairs  of  the 
bank,  no  salary  is  paid.  This  is  often  the  case. 

We  have  mentioned  that  in  some  cases  he  is  the  real  business 
head  of  a  bank,  and  that  in  others  he  is  not.  The  country  banks, 
so  called,  by  which  is  meant  in  this  place,  the  banks  outside  the 
larger  cities,  are  managed  by  the  cashier.  Here  and  there  may  be 
found  an  exception.  In  the  large  cities,  however,  the  president  is 
usually  the  chief  business  officer,  going  to  the  bank  regularly,  and 
spending  his  time  there  during  banking  hours.  He  is  a  hard- 
working officer,  acquainted  with  all  the  details  of  the  business, 
and  interested  in  all  matters  pertaining  to  the  prosperity  of  his 
enterprise.  Occasionally  the  president  of  a  city  bank  is  a  figure 


THE    PRESIDENT.  2$ 

head,  and  then  the  vice-president  or  cashier  is  the  chief  business 
officer. 

An  author,  from  whom  we  shall  frequently  quote,  has  said :  "  It 
is  considered  desirable  that  the  president  should  possess  an  in- 
dependent income,  and  be  free  from  the  entanglements  of  trade. 
Engagement  in  other  business  would  distract  his  attention  from 
the  bank,  and  might  give  rise  to  a  conflict  of  interests.  Under  the 
pressure  of  personal  embarrassment,  with  the  means  of  relief  in  his 
official  hands,  even  a  rigid  sense  of  duty  might  be  overcome.  The 
highest  tone  of  sentiment  on  this  point  is,  therefore,  adverse  to  his 
connection  with  the  hazards  of  commerce.  Yet  several  of  our  most 
prosperous  New  York  City  banks  have  always  been  presided  over  by 
active,  enterprising  merchants. 

"There  are  other  reasons  why  a  bank  president  should  hold 
himself  aloof  from  mercantile  business.  With  large  capital  invested 
in  a  particular  branch  of  trade,  his  views  might  insensibly  become 
narrow  and  partial.  An  engrossing  special  interest  would  divert 
his  mind  from  the  close  study  of  credits  generally,  and  make  his 
judgment  less  clear,  as  the  condition  of  commerce  becomes  more 
critical.  In  a  season  of  growing  stringency  in  the  money  market, 
self-interest  compels  bank  directors,  in  common  with  others,  to 
withdraw  their  attention  from  all  affairs  but  their  own,  and  thus 
additional  responsibility  is  thrown  on  the  officers,  particularly  on 
the  president.  The  discounting  of  paper  is  then  less  strictly  con- 
fined to  the  sessions  of  the  board.  It  is  spread  through  every 
hour  of  the  day,  with  specialities  and  importunities  which  can  be 
dealt  with  only  individually  and  privately."* 

The  truth  of  Gibbons'  first  remark  has  been  illustrated  in  a 
startling  manner  on  more  than  one  occasion.  A  bank  president 
ought  not  to  be  regarded  morally  as  a  very  superior  being.  If  he 
is  engaged  in  outside  interests  of  greater  pecuniary  or  other  im- 
portance to  him  than  his  bank,  there  is  danger  that  he  will  neglect 
or  use  it  for  a  personal  end.  This  has  happened  again  and  again. 
Within  a  very  short  time  several  fresh  illustrations  have  been 
added  to  those  existing  before. 

It  need  hardly  be  said  that  a  bank  president  should  possess  a 
very  considerable  knowledge,  especially  of  men.  It  is  true  that 
many  a  successful  bank  president  has  had  only  a  slight  acquaint- 
ance with  books,  but  he  has  understood  men.  To  have  this  knowl- 
edge in  a  marked  degree  is  a  gift  rather  than  an  acquirement;  yet 
the  less  fortunate  should  strive,  nevertheless,  to  acquire  by  deter- 
mined effort  that  knowledge  of  men  which  is  so  essential  to  busi- 
ness success, 

A  bank  president  should  keep  a  keen  watch  on  the  movements 
of  trade,  on  the  strength  and  weakness  of  those  to  whom  money  is 

*  Gibbons'  Banks  of  New    York,   p.  24. 


26  PRACTICAL    BANKING. 

loaned,  or  who  are  likely  to  ask  for  loans,  for  on  the  sagacious 
lending  of  the  bank's  resources  mainly  depends  its  prosperity.  Some 
bank  presidents  read  the  trade  newspapers  with  great  care,  and 
search  in  every  quarter  for  information  relating  to  the  borrowers  of 
money.  If  a  considerable  number  of  failures  occur  in  a  particular 
trade  they  are  carefully  noted.  A  bank  president  told  the  writer  a 
few  years  ago  that  a  great  deal  of  tobacco  had  been  injured  in  curing 
during  that  year,  and  that  he  should  be  especially  careful  about 
discounting  "tobacco  paper,"  because  he  expected  that  a  good  many 
failures  would  happen  among  tobacco  manufacturers.  This  is  the 
kind  of  vigilance  required  for  a  bank  manager.  Still,  however  wisely 
he  may  conduct  the  business  of  discounting,  risks  are  unavoidable, 
and  losses  will  accrue. 

As .  correct  sentiments  beget  correct  conduct,  a  banker  ought 
to  apprehend  correctly  the  objects  of  banking.  They  consist 
in  making  pecuniary  gains  for  the  stockholders,  by  legal  oper- 
ations. The  business  is  eminently  beneficial  to  society ;  but  some 
bankers  have  deemed  the  good  of  society  so  much  more  worthy 
of  regard  than  the  private  good  of  stockholders,  that  they  have 
supposed  all  loans  should  be  dispensed  with  direct  reference  to  the 
beneficial  effect  of  the  loans  on  society,  irrespective,  in  some  degree, 
of  the  pecuniary  interests  of  the  dispensing  bank.  Such  a  banker 
will  lend  to  builders,  that  houses  or  ships  may  be  multiplied ;  to 
manufacturers,  that  useful  fabrics  may  be  increased;  and  to  mer- 
chants, that  goods  may  be  seasonably  replenished.  He  deems  him- 
self, ex-officio,  the  patron  of  all  interests  that  concern  his  neigh- 
borhood, and  regulates  his  loans  to  these  interests  by  the  urgency 
of  their  necessities,  rather  than  by  the  pecuniary  profits  of  the 
operations  to  the  bank,  or  the  ability  of  the  bank  to  sustain  such 
demands.  When  we  perform  vfell  the  direct  duties  of  our  station 
we  need  not  curiously  trouble  ourselves  to  effect,  indirectly,  some 
remote  duty.  Re'sults  belong  to  Providence,  and,  by  the  natural 
catenation  of  events  (a  system  admirably  adapted  to  our  restricted 
foresight),  a  man  can  usually  in  no  way  so  efficiently  promote  the 
general  welfare,  as  by  vigilantly  guarding  the  peculiar  interests  com- 
mitted to  his  care.  If,  for  instance,  his  bank  is  situated  in  a  re- 
gion dependent  for  its  prosperity  on  the  business  of  lumbering, 
the  dealers  in  lumber  will  naturally  constitute  his  most  profitable 
customers  :  hence,  m  promoting  his  own  interest  out  of  their  wants, 
he  will,  legitimately,  benefit  them  as  well  as  himself,  and  benefit 
them  more  permanently  than  by  a  vicious  subordination  of  his  in- 
terests to  theirs.  Men  will  not  engage  permanently  in  any  business 
that  is  not  pecuniarily  beneficial  to  them  personally;  hence,  a 
banker  becomes  recreant  to  even  the  manufacturing  and  other  inter- 
ests that  he  would  protect,  if  he  so  manage  his  bank  as  to  make 
its  stockholders  unwilling  to  continue  the  employment  of  their 


THE   PRESIDENT.  27 

capital  in  banking.  This  principle,  also,  is  illustrated  by  the  late 
United  States  Bank,  for  the  stupendous  temporary  injuries  which 
its  mismanagement  inflicted  on  society  are  a  smaller  evil  than  the 
permanent  barrier  its  mismanagement  has  probably  produced  against 
the  creation  of  any  similar  institution. 

The  honor  and  pecuniary  prosperity  of  his  bank  should  constitute 
the  paramount  motive  of  every  banking  operation.  A  violation  of 
this  principle  produced,  in  the  year  eighteen  hundred  and  thirty- 
seven,  a  suspension  of  specie  payments,  which  was  visited  on  bank 
stockholders  by  a  legislative  prohibition  of  dividends,  and  visited 
on  banks  and  bankers  by  a  general  obloquy.  The  banks  suspended 
that  the  debtors  of  the  bank  might  not  suspend :  or  worse,  the 
banks  suspended  that  the  debtors  might  be  spared  the  pecuniary 
loss  that  would  have  resulted  from  paying  their  bank  debts.  A  con- 
duct so  suicidal  was  probably  fostered  by  the  pernicious  union,  in 
one  person,  of  bank  director  and  bank  debtor,  a  union  from  which 
our  banks  are  never  wholly  exempt ;  nor  are  they  always  exempt 
from  the  same  union,  still  more  pernicious,  in  bank  presidents  and 
cashiers.  With  this  inherent  defect  in  the  organization  of  our 
banks,  we  can  the  more  readily  understand  why,  in  1837,  the  banks 
assumed  dishonor  to  shield  their  debtors,  and  why  the  dishonor 
was  continued  for  some  more  than  a  year  in  our  State,  and  longer 
in  others;  and  would  have  continued  longer  in  ours,  but  from  a  re- 
fusal of  its  further  tolerance  by  the  legislature. 

Every  suspension  of  specie  payments  might  have  been  prevented, 
had  the  bankers  performed  their  duty  to  their  respective  banks,  by 
prudence  in  the  quality  of  their  loans,  and  vigor  in  the  enforce- 
ment of  payments.  No  proof  of  this  can  be  more  convincing  than 
the  successfully  sustained  refusal  of  the  Union  Bank  of  New  York 
to  unite  in  the  specie  suspension  of  the  year  eighteen  hundred  and 
thirteen.  All  the  banks,  also,  of  New  England  preserved  specie  pay- 
ments. We  admit  that,  had  all  the  banks  of  the  Union  refused 
to  suspend  payments  in  1813,  1819  and  1837,  business  would  have 
severely  suffered ;  but  this  is  a  consideration  for  the  legislature,  and 
not  for  the  banks.  They  are  creations  of  the  law,  and  should 
obey  their  creator.  In  England,  during  its  struggle  with  Napoleon* 
the  Government  prohibited  specie  payments  by  the  Bank  of  Eng- 
land, when  the  suspension  was  deemed  publicly  useful.  The  suspen- 
sion continued  for  twenty  years,  but  the  bank  incurred  thereby  no 
disgrace,  for  it  obeyed  the  law. 

The  subordination  of  the  honor  and  interests  of  a  bank  to  the 
avarice  or  necessities  of  its  managers,  or  dealers  of  any  description, 
is  productive,  not  of  suspensions  only,  but  of  every  disaster  which 
usually  befalls  banks ;  and  unless  such  a  subordination  can  be  pre- 
vented by  the  officer  who  acts  specially  as  a  banker,  no  man  who 
respects  himself  should  continue  in  the  position,  when  he  discovers 


28  PRACTICAL    BANKING. 

that* such  a  subordination  is  in  progress.  The  owner  of  a  steam 
engine  regulates  his  business  by  the  capacity  of  his  engine,  but 
should  he  regulate  it  by  the  necessities  of  his  customers,  he  would 
probably  burst  his  boiler.  A  shipowner  regulates  his  freight  by  the 
tonnage  of  his  ship;  a  contrary  course  would  sink  it.  So  every 
bank  possesses  a  definite  capacity  for  expansion  by  which  bank 
dealers  can  regulate  their  business ;  but,  when  a  bank  regulates  its 
expansion  by  the  wants  of  its  dealers,  or  the  persuasion  of  friend- 
ship, it  will  probably  explode,  or  be  otherwise  unprofitable  to  its 
stockholders. 

Banks  charge  for  the  use  of  money  no  more  than  the  use  is 
worth.  Nothing  is  added  for  risk,  and  thereby  money-lending  dif- 
fers from  all  other  business  that  involves  hazard.  A  great  dispro- 
portion exists  also  between  the  amount  hazarded  by  any  loan,  and 
the  amount  gained.  The  loan  of  a  thousand  dollars  for  sixty 
days  involves  the  possible  loss  of  a  thousand  dollars,  without  the 
possibility  of  a  greater  gain  than  some  ten  dollars.  Banks,  there- 
fore, never  regularly  lend  money,  without  receiving  the  security  of 
more  than  one  person  who  is  deemed  safe  for  the  debt;  and  a 
good  banker  will  err  on  the  side  of  excessive  security,  rather 
than  accept  security  whose  sufficiency  may  reasonably  be  ques- 
tioned. In  the  country,  two  endorsers  are  usually  required  on  every 
note  that  is  discounted;  but  in  cities,  where  discounts  are  made 
for  shorter  periods  than  in  the  country,  one  endorser  is  more  usual 
than  two. 

Independently  of  the  wealth  of  the  endorser,  the  banks  derive 
from  him  a  security  founded  on  the  natural  desire  of  every  bor- 
rower to  protect  his  friends,  should  insolvency  occur  to  the  bor- 
rower during  the  pendency  of  the  bank  loan.  An  endorser,  will, 
also,  usually  foresee  earlier  than  the  bank  when  mischances  threaten 
the  borrower,  and  when  appeals  for  protection  should  be  made.  To 
derive  these  benefits  from  endorsers,  they  should  be  disconnected  in 
business  from  the  borrower,  so  as  not  to  be  involved  in  his  calam- 
ities; hence,  such  disconnection  is  always  one  of  the  circumstances 
from  which  a  banker  judges  of  the  sufficiency  of  any  proffered  en- 
dorser. Relationship  of  either  consanguinity  or  affinity,  between  a 
debtor  and  his  sureties,  sharpens  usually  the  desire  of  the  debtor 
to  protect  his  endorser;  while  again  such  relationship  facilitates  the 
concealment  of  a  common  pecuniary  interest  in  enterprises,  and  fa- 
cilitates collusions  against  the  bank  in  times  of  disaster,  that  may 
more  than  counterbalance  the  benefits  expected  by  the  bank  from 
the  relationship. 

The  more  lax  the  morality  is  of  a  borrower,  the  less  will  he  prob- 
ably feel  the  obligation  to  protect  his  endorsers ;  and  the  more  lax 
the  morality  is  of  an  endorser,  the  more  will  he  struggle  against 
the  surrender  of  his  property  to  pay  an  unprotected  endorsement. 


THE    PRESIDENT.  29 

As  a  general  result,  however,  debts  are  rarely  collectable  from  the 
property  of  an  endorser,  unless  his  property  very  greatly  over-bal- 
ances the  amount  of  his  endorsement.  Instances  are  continually 
occurring  where  an  endorser  who  has  become  liable  for  a  bad  debt 
which  his  property  could  pay,  and  leave  him  a  surplus,  will  ruin 
himself  in  successfully  preventing  the  application  of  his  property 
to  the  debt  in  question.  Hence,  when  a  debt  is  contracted  wholly 
on  the  property  of  the  endorser,  the  debt  will  not  be  safe  unless  it 
is  small  in  comparison  with  the  wealth  of  the  endorser. 

Men  who  are  prone  to  extravagance  in  their  domestic  or  per- 
sonal expenditures  rarely  possess  the  amount  of  property  they  are 
reputed  to  possess.  Men  expend  to  be  thought  rich  more  frequently 
than  they  expend  by  reason  of  being  rich.  The  rich  are  usually 
more  inclined  to  parsimony  than  expenditure.  Any  way,  persons 
who  practice  parsimony  are  in  the  way  of  becoming  rich,  whatever 
may  be  their  present  poverty;  while  persons  who  are  profuse  in 
expenditures  are  in  the  way  of  becoming  poor,  though  they  may 
possess  a  present  opulence. 

A  man  who  transacts  a  regular  business  in  a  regular  way  is  not 
liable  to  sudden  fluctuations  in  his  pecuniary  solvency;  but  when 
a  man's  business  is  novel,  and  its  results  are  untried,  or  when  its 
results  are  frequently  disastrous,  the  banker  who  grants  him  loans 
assumes  some  of  the  hazards  and  uncertainties  of  the  business. 

When  money  is  to  be  invested  in  the  purchase  of  merchandise, 
cattle,  flour,  or  other  property  in  the  regular  course  of  the  borrow- 
er's business,  the  investment  yields  to  the  borrower  a  means  of  re- 
payment; nothing  is  hazarded  but  ordinary  integrity,  and  ordinary 
exemption  from  disasters;  but  when  the  borrowed  money  is  to  pay 
some  pre-existing  debt,  none  of  the  foregoing  securities  apply,  and, 
possibly,  you  are  merely  taking  a  thorn  out  of  another  person's 
side,  to  place  it  in  your  own. 

Notes  which  a  man  receives,  on  the  sale  of  property  in  his  ordi- 
nary business,  are  termed  business  notes.  The  owner,  having  re- 
ceived them  as  money,  had  satisfied  himself  of  their  safety ;  hence, 
when  they  are  offered  to  a  banker  by  a  prudent  man  of  business, 
they  possess  an  inherent  evidence  of  value.  They  were  given  also 
for  property  that  will,  in  the  ordinary  course  of  business,  furnish 
the  means  by  which  the  notes  may  be  paid  ;  and  thus  they  possess 
an  additional  ingredient  of  safety.  Kindred  to  such  notes  are  drafts 
which  a  man  draws  on  a  consignee  to  whom  property  has  been 
forwarded  for  sale.  If  the  consignee  be  a  prudent  man  (the  con- 
signor must  deem  him  prudent  or  he  would  not  trust  to  him  the 
property)  he  will  not  accept  unless  the  property  forwarded  is 
equivalent  in  value  to  the  amount  of  the  acceptance.  The  prop- 
erty, therefore,  will  pay  the  acceptance,  and  while  the  property  re- 
mains unsold,  it  constitutes  an  equitable  pledge  for  ultimate  pay- 


30  PRACTICAL   BANKING. 

ment.  A  country  banker,  however,  will  usually  be  benefited,  in  a 
long  course  of  business,  by  never  loaning  on  city  names  without 
a  reliable  country  endorser  or  maker,  or  both  ;  for  nothing  is  usu- 
ally more  unreliable  than  the  reputed  solvency  of  the  merchants  of 
large  cities. 

A  factor  will  sometimes  accept  in  confidence  that  the  drawer  will 
supply  him  with  funds  in  time  to  pay  the  acceptance.  This  will  not 
constitute  a  worse  security  than  an  ordinary  accommodation  en- 
dorsement ;  but  the  transaction  lacks  the  reliability  and  security 
that  are  consequent  to  the  acceptor's  possession  of  consignments  in 
advance  of  his  acceptance,  and  so  far  as  the  nature  of  the  acceptance 
is  concealed,  the  ostensible  character  of  the  paper  will  give  it  a  fic- 
titious security. 

Notes  and  acceptances  are  often  assimilated  to  the  foregoing 
character  to  facilitate  the  procurement  of  loans.  Two  merchants 
will  exchange  notes,  and  offer  each  other's  notes  at  different  banks, 
as  business  paper.  Such  notes  are  peculiarly  hazardous  by  reason 
that  the  insolvency  of  either  of  the  parties  will  usually  produce 
the  insolvency  of  the  other.  Acceptances  are  exchanged  in  the 
same  way,  and  possess  the  same  element  of  danger. 

Sometimes  a  country  merchant  will  draw  on  a  merchant  of  New 
York,  and  obtain  thereon  a  discount  at  some  country  bank.  The 
draft  will  have  some  months  to  run  before  it  will  become  payable; 
but  when  it  is  payable,  the  New  York  merchant  will  obtain  the 
means  of  payment  by  drawing  on  the  country  merchant,  payable 
some  months  thereafter,  and  getting  a  discount  thereon  in  New 
York.  Such  transactions  are  termed  "  kiting."  They  are  practiced 
on  notes  as  well  as  on  drafts;  and  by  persons  residing  in  the  same 
place  as  well  as  at  distant  places.  When  practiced  by  persons  who 
live  at  a  distance  from  each  other,  the  operation  is  usually  very  ex- 
pensive, by  incidental  charges  of  exchange  and  collection.  Bankers 
should  suspect  the  solvency  of  parties  who  resort  to  expedients  so 
commercially  disreputable.  The  real  character  of  the  transactions 
is  rarely  avowed  by  the  parties  inculpated  in  the  practices;  but  a 
vigilant  banker  will  soon  suspect  the  operations,  and  not  touch 
them  unless  the  security  can  be  made  very  ample. 

A  country  produce  dealer,  or  manufacturer,  will  sometimes  place 
in  New  York  an  agent  on  whom  to  draw ;  or  he  may  connect 
his  operations  with  some  person  there  of  no  capital,  whom  he  will 
use  as  an  acceptor.  Such  acceptances  are  no  better  than  the  note 
of  the  country  dealer.  They  constitute,  moreover,  a  hazardous  class 
of  paper,  as  you  may  rely  somewhat  on  an  assumed  capital  in  the 
acceptors.  Such  methods  are  rarely  practiced  except  by  persons 
who  want  to  extend  their  operations  beyond  a  limit  to  which  a  real 
consignee  would  restrict  them.  No  prudential  limit  exists  with  the 
dummy  acceptor,  hence,  the  drawer  is  able  to  carry  his  operations 


THE   PRESIDENT.  31 

to  an  extent  unlimited,  except  by  his  own  will,  or  his  ability  to 
find  lenders ;  and  men  thus  predisposed,  and  supplied  with  the 
requisite  machinery,  usually  extend  their  speculations  till  they  are 
overwhelmed  in  ruin. 

Notes  and  drafts  are  often  made  to  be  sold  at  a  usurious  dis- 
count, by  parties  ostensibly  solvent,  but  who  are  struggling  to  pur- 
chase a  transient  respite  from  bankruptcy,  or  to  amend  their 
fortunes  by  desperate  enterprises.  Banks  are,  therefore,  usually  re- 
luctant to  discount  paper  offered  by  brokers  and  other  persons  who 
are  known  to  practice  usury ;  for  though  usury  laws  have  been 
greatly  modified  within  a  few  years,  yet  no  bank  wishes  to  take 
paper  which  may  form  the  subject  of  a  lawsuit.  In  many  places 
the  defence  of  usury  is  said  to  be  so  discreditable  that  few  men 
will  avail  themselves  of  it.  In  the  country,  people  feel  less  fastid- 
ious in  this  respect,  and  any  debt  which  can  certainly  be  avoided 
by  means  of  usury  would  be  very  apt  to  be  uncollectable. 

But  the  avoidance  of  loss  is  only  a  negation  of  evil.  To  make 
gains  is  the  proper  business  of  a  banker,  and,  as  the  principal 
source  of  legitimate  gain  is  lending  money,  the  bank  must  lend  to 
the  extent  of  its  ability — erring  on  the  side  of  repletion,  rather 
than  of  inanition  ;  for  a  banker  knows  not  how  far  his  bank  can 
bear  extension  till  he  tries ;  hence,  if  timidity,  indolence,  or  apathy, 
limits  his  loans  in  advance  o*  necessity,  he  may  injure  the  commu- 
nity by  unnecessarily  withholding  pecuniary  assistance,  and  injure  the 
stockholders  by  unnecessarily  abridging  the  profits.  A  banker  must 
not,  however,  extend  his  loans  regardless  of  the  future,  but,  like  a 
skillful  mariner,  he  should  see  an  approaching  storm  while  it  is  an 
incipient  breeze,  and  meanwhile  carry  all  the  sail  that  will  not 
jeopardize  the  safety  of  his  charge  :  governing  his  discounts,  at  all 
times,  more  by  the  condition  of  his  funds,  and  his  own  prospective 
resources,  than  by  any  reputed  scarcity  or  abundance  of  money  in 
other  places  and  in  other  banks. 

If  a  banker  can  make  reasonably  good  profits  on  his  capital  with- 
out much  expansion,  he  may  keep  more  restricted  in  his  loans 
than  a  banker  should  who  is  less  favorably  circumstanced.  Every 
banker  must,  however,  remember,  that  to  be  strong  in  funds  and 
rich  in  profits  are  natural  incompatibilities  ;  hence,  the  more  money 
a  banker  wishes  to  make,  the  poorer  in  funds  he  must  consent  to 
become.  In  banking  operations,  as  in  most  other,  wisdom  lies  in 
a  medium  between  extremes ;  and  if  a  banker  can  keep  funds 
enough  for  practical  safety,  he  had  better  forego  excess  of  funds, 
and  receive  an  equivalent  in  gains.  Physicians  say  that  the  hu- 
man body  can  bear  excess  of  food  better  than  deficiency.  The  ex- 
cess can  be  discharged  by  cutaneous  eruptions,  as  we  see  some- 
times in  over-fed  infants ;  but  deficiency  of  nourishment  will  not 
relieve  itself;  so  in  banking,  a  repletion  of  loans,  if  they  are  un- 


32  PRACTICAL    BANKING. 

doubtedly  solvent,  prompt  and  short,  will  soon  of  themselves  work 
a  relief  to  the  bank ;  but  a  paucity  of  loans  cannot,  by  any  proc- 
ess of  its  own,  cure  the  scant  profits  of  the  stockholders.  Banks 
are  rarely  injured,  therefore,  by  an  excess  of  discounts.  When  banks 
fail,  their  disaster  proceeds  from  the  quality  of  their  loans,  not 
from  the  quantity. 

No  banker  should  keep  his  funds  inactive  when  no  better  ex- 
cuse exists  therefor  than  that  the  business  he  can  obtain  is  not 
so  lucrative  as  the  business  of  some  other  place,  or  as  his  own 
business  was  at  some  other  period.  The  legal  rate  of  interest  is 
so  high,  that  the  voluntary  forbearance  of  its  reception  for  even  a 
short  period,  is  ordinarily  a  greater  evil  than  the  reception  of  any 
co*mmon  description  of  solvent  loans.  Any  way,  a  banker  who 
keeps  his  funds  inactive,  to  await  the  offer  of  loans  more  lucrative 
than  simply  the  interest  of  money,  should  be  well  assured  that  the 
future  loans  will  be  sufficiently  lucrative  to  compensate  for  the  for- 
bearance. But  no  disadvantages  of  position  must  be  deemed  a 
sufficient  apology  for  the  assumption  of  hazardous  loans.  When  no 
safe  business  offers,  no  business  should  be  transacted  by  a  banker 
who  entertains  a  proper  respect  for  himself,  or  a  proper  feeling  for 
his  stockholders.  Gains  may  be  impossible,  but  losses  are  measur- 
ably avoidable.  If  any  location  presents  the  alternative  of  no  busi. 
ness,  or  great  hazards,  a  banker  is  accountable  for  the  choice  which 
he  may  make  between  the  two  alternatives;  and  he  is  accountable 
no  further. 

But  ordinarily  every  banker  is  presented  with  more  business 
than  he  can  assume,  and  he  is  enabled  to  select  the  more  profit- 
able and  reject  the  less  profitable.  In  speaking  of  the  profits  of 
banking,  we  mean  gains  that  proceed  from  some  other  source 
than  the  interest  allowed  by  law  for  the  use  of  the  money.  These 
gains  are  derived  most  largely  from  circulation  and  deposits;  hence 
the  loans  are  advantageous  to  a  bank,  in  proportion  as  they  in- 
crease the  circulation  or  deposits  of  the  bank.  Money  was  sometimes 
borrowed  to  pay  debts  to  a  neighboring  bank,  or  to  a  person  who 
kept  his  money  deposited  in  a  neighboring  bank.  Such  loans 
yield  no  profit  to  the  lender  except  the  interest  on  the  loan ;  hence 
they  are  not  so  profitable  as  loans  to  borrowers  who  will  take 
bank  notes  of  the  lending  bank,  and  circulate  them  over  the 
country  in  the  purchase  of  agricultural  products.  While  the  notes 
remain  in  circulation,  the  bank  is  receiving  interest  on  them  from 
the  borrower — interest  not  for  the  loan  of  money,  but  for  the  loan 
by  the  bank  of  its  promises  to  pay  money  when  demanded.  So,  on 
a  loan  made  by  a  bank  to  one  of  its  depositing  customers,  the 
bank  receives  interest  only  on  its  promise  to  pay  the  borrowed 
money  when  the  borrower  shall  from  time  to  time  draw  for  the 
same.  And  when  a  deposit  is  thus  drawn  from  a  bank,  the  draft 


THE  PRESIDENT.  33 

is  not  necessarily  paid  in  money,  but  in  bank  notes  which  may 
obtain  a  circulation.  This  advantage  is  a  usual  attendant  of  the 
deposits  of  some  customers,  and  makes  their  accounts  doubly  bene- 
ficial to  a  bank.  Whether  a  depositor  asks  for  more  loans  than 
his  deposit  account  entitles  him  to  receive,  is  a  question  whose 
solution  depends  on  whether  the  bank  can  lend  all  its  money  to 
better  depositing  customers,  or  more  profitably  use  it  in  loans  for 
circulation.  A  banker  should,  however,  estimate  liberally  the  merits 
which  pertain  to  a  steady  customer;  not  deciding  on  any  proposed 
loan  by  the  amount  of  the  proposer's  deposit  at  the  time  of  the 
proposal,  but  his  antecedent  deposits,  which  were  doubtless  made 
in  reliance  on  the  bank  for  a  fair  reciprocity  of  benefits.  Competi- 
tion for  profitable  customers  exists  among  banks  as  eagerly  as 
competition  among  borrowers  for  bank  loans ;  hence  liberality 
to  customers  by  a  banker  is  as  much  a  dictate  of  interest  as  of 
justice. 

Notes  and  time-drafts  discounted  by  country  banks,  and  payable 
in  New  York,  Boston,  Philadelphia,  and  other  eastern  places 
were  payable  in  a  currency  whose  value  was  enhanced  by  the 
rate  of  exchange,  which  existed  in  favor  of  the  east  and  against 
the  west.  As  country  banks  never  allowed  any  premium  in  the 
reception  of  such  paper,  the  benefit  of  the  exchange  was  a  strong 
inducement  to  a  country  banker  for  preferring  loans  thus  payable 
to  loans  payable  at  his  own  counter.  Borrowers  would  often  take 
advantage  of  this  predilection,  and  make  notes  payable  artificially  at 
New  York,  as  a  means  of  obtaining  a  loan  of  a  country  banker. 
Notes  thus  made  were  rarely  paid  at  maturity ;  hence,  so  far  as  a 
banker  relied  on  their  payment,  and  founded  his  business  calcula- 
tions thereon,  they  were  hurtful.  To  the  extent  that  he  colluded 
with  the  maker  and  supplied  him  with  funds  by  which  such  note 
could  be  paid  at  New  York,  at  a  loss,  to  the  maker,  of  the  differ- 
ence in  the  rate  of  exchange,  the  transaction  was  unlawful. 

Banking  is  not  exempt  from  the  ordinary  fatality  which  ever  in 
a  long  course  of  business  makes  honesty  the  best  policy.  To  gain 
unlawfully  must  also  be  a  poor  recommendation  to  a  banker,  with 
any  thoughtful  stockholder ;  for  if  a  man  will  collude  to  make  dis- 
honest gains  for  his  stockholders,  what  security  can  the  stockholders 
possess  that  he  will  not  collude  against  them,  to  make  dishonest 
gains  for  himself?  A  country  banker  may  properly  discount  a  note 
payable  in  New  York  when  the  maker's  business  will  make  New 
York  the  most  convenient  place  of  payment,  though  the  borrower's 
residence  may  be  in  the  country :  such  is  often  the  case  with 
drovers,  lumbermen,  and  some  manufacturers.  Transactions  of  this 
circuitous  nature  must,  however,  be  spontaneous  on  the  part  of  the 
borrower;  for  a  note  is  usurious  if,  in  addition  to  the  receipt  of 
legal  interest,  the  banker  superadds,  as  a  condition  of  the  loan,  that 


34  PRACTICAL    BANKING. 

it  must  be  paid  at  a  distant  city,  and  consequently  in  a  currency 
more  valuable  than  that  the  lender  received.  But  when  such  loans 
are  legal,  and  possess  the  best  commercial  character  for  punctuality 
and  security,  they  are  not  always  so  advantageous  to  the  country 
bank  as  notes  payable  at  the  country  bank,  and  connected  with  the 
circulation  of  bank  notes  or  with  deposits.  The  force  of  this  re- 
mark can  perhaps  be  better  seen  in  what  follows. 

Banks  can  usually  make  as  many  loans  as  they  desire  to  borrow- 
ers who  will  use  the  loan  in  purchasing  from  the  bank  a  draft  on 
New  York  or  other  eastern  city,  whereby  the  bank  will  obtain  a 
premium  on  the  sale  of  the  draft,  in  addition  to  the  interest  on 
the  loan.  The  operation  becomes  peculiarly  advantageous  to  the 
bank  when  the  loan  is  itself  payable  in  New  York,  for  while  the 
borrower  pays,  in  such  a  transaction,  say  an  eighth  of  one  per  cent, 
to  the  bank  for  a  bank  draft  on  New  York,  he  subsequently  repays 
in  New  York  the  borrowed  money  without  receiving  any  return 
premium  from  the  bank.  But  howsoever  profitable  such  a  trans- 
action seems,  banks  can  rarely  transact  advantageously  much  of  such 
business.  Should  the  entire  capital  of  a  bank  of  three  hundred 
thousand  dollars  be  employed  in  discounting  drafts  on  New  York 
payable  at  three  months  from  the  t^me  of  discount,  and  should  the 
bank  pay  therefor  sight  drafts  on  New  York,  charging  for  them  a 
premium  of  a  quarter  of  one  per  cent.,  the  bank  could  not  pay 
its  stockholders  above  six  per  cent,  the  year  in  bank  divi- 
dends. 

As  every  loan  is  usually  attended  with  some  advantage  to  the 
bank,  in  the  ways  we  have  explained,  beyond  the  interest  paid  by 
the  borrower,  the  sooner  the  loan  is  to  be  repaid  to  the  bank, 
the  more  frequently  will  the  bank  be  able  to  reloan  the  money, 
and  obtain  a  repetition  of  the  incidental  advantages. 

Country  banks  being  subject,  at  certain  seasons,  to  a  demand 
for  currency,  every  judicious  banker  will  endeavor  to  so  select 
the  loans  which  he  makes  during  a  year,  that  large  amounts 
of  them  will  become  payable  at  the  precise  periods  of  the  spring 
and  fall  when  funds  will  be  most  needed.  This  is  imitating  the 
conduct  of  Pharaoh,  who,  during  the  years  of  plenty,  accumulated 
provisions  for  the  periods  of  apprehended  famine.  Many  months 
of  every  year  are  months  of  plenty  with  every  well-conducted 
bank.  The  paper  which  is  selected  for  the  future  contingency  will 
be  useful  in  proportion  to  its  reliability ;  and  paper  payable  in 
New  York,  or  other  eastern  cities,  may  be  more  useful  than  any 
other.  No  rule  of  banking  is  more  practically  valuable  than  the 
foregoing. 

As  banking  is  liable  to  panics  and  pressures  which  may  arise 
without  being  preceded  by  any  long  premonitory  symptoms,  a  banker 
must  invest  his  funds  in  short  loans,  which  measurably  accomplish 


THE    PRESIDENT.  35 

the  feat  that  is  proverbially  impossible,  "to  have  a  cake  and  eat 
it  at  the  same  time : " — that  is,  by  means  of  short  loans,  the  bank 
keeps  its  funds  always  available  within  a  short  period,  and  yet 
keeps  them  always  loaned  out  on  interest.  The  banks  of  large  cities 
are  able  to  make  loans  payable  on  demand,  or  in  a  few  days' 
notice ;  while  country  banks  possess  no  such  opportunities,  but  are 
able  usually  to  deposit  their  spare  funds  in  some  bank  in  New 
York,  subject  to  a  repayment  on  demand,  or  on  short  notice;  and 
in  the  mean  time  to  receive  interest  on  the  deposit.  Experience,  how- 
ever, has  painfully  demonstrated  that  the  convenience  of  an  inter- 
est-paying depository  is  not  exempt  from  danger. 

What  is  every  person's  business  is  proverbially  nobody's ;  hence  the 
safety  of  banks  depends  less  on  boards  of  directors  than  on  some  one 
person  to  whom  the  bank  is  specially  confided.  He  is  to  be  always 
present,  and  always  responsible,  in  his  feelings  and  in  public  estima- 
tion, for  the  prosperity  of  the  bank;  and  for  these  services  he 
ought  to  be  well  compensated,  pecuniarily,  so  as  to  stimulate  the 
faculties  to  their  best  efforts.  We  mistake  human  nature  when  we 
expect  great  efforts  from  any  man,  and  supply  no  proper  motive 
therefor. 

In  large  cities,  discounts  are  generally  made  to  persons  who  are 
known  personally  or  by  reputation  to  some  of  the  directors,  but  in 
country  banking,  the  borrowers  and  their  endorsers  in  many  cases 
are  residents  of  remote  places,  and  unknown,  personally,  in  the  lo- 
cality cf  the  bank.  A  country  banker,  who  should  insist  on  a  per- 
sonal acquaintance  with  the  makers  and  endorsers  of  all  the  paper  he 
desired  to  buy,  might  find  his  business  restricted  to  a  circle  too  small 
for  the  employment  of  his  capital.  In  vain  will  such  a  banker  in- 
sist that  he  ought  not  to  make  loans  to  persons  of  whom  he 
possesses  no  knowledge;  the  answer  will  be  that  he  should  acquire 
the  knowledge.  It  is  indispensable  to  his  bank.  He  is  bound  to 
know  a  sufficient  number  of  persons  to  enable  his  bank  to  em- 
ploy its  capital  advantageously.  Every  note,  therefore,  that  he  re- 
jects for  want  of  knowledge,  is  ostensibly  a  slight  reproach  on  him, 
in  cases  where  he  has  not  a  sufficiency  of  known  borrowers ;  while 
every  note  that  he  rejects  or  accepts  by  means  of  his  knowledge  of 
the  parties  is  a  tribute  to  his  industry  and  vigilance. 

The  preceding  remarks  will  show  why  country  banks  are  speci- 
ally liable  to  loss  from  forgeries.  Moreover,  many  of  the  makers 
and  endorsers  who  deal  with  country  banks  write  poorly,  and  their 
signatures  bear  but  little  internal  evidence  of  genuineness,  even 
when  you  are  partially  acquainted  with  the  parties ;  for  the  same 
person  will  write  differently  at  different  times,  and  especially  with 
different  pens  and  different  qualities  of  ink;  and  he  varies  these 
continually.  Still,  the  greater  the  danger,  the  greater  is  the  caution 
which  the  banker  must  exercise.  He  must  bring  to  the  difficulty 


36  PRACTICAL    BANKING. 

all  the  scrutiny  of  which  the  case  is  susceptible,  or  he  will  not 
stand  excused  for  consequent  losses.  A  comparison  of  any  proffered 
signature  with  one  that  is  genuine,  though  encumbered  with  difficul- 
ties as  above  explained,  is  a  guide  that  should  not  be  neglected ;  and 
it  is  often  the  best  that  can  be  resorted  to.  Banks,  therefore, 
keep  a  book  in  which  every  person  who  deals  with  the  bank 
inserts  his  name.  The  signatures  should  be  placed  alphabetically,  to 
facilitate  a  future  reference  to  them.  The  endorsers  may  never  visit 
the  bank;  but,  when  a  note  is  paid,  the  names  of  the  endorsers 
may,  with  the  consent  of  the  maker,  be  cut  from  the  note,  and 
pasted  into  the  book,  in  their  proper  order.  In  no  very  long  time, 
a  mass  of  autographs  may  be  thus  collected.  Some  names  on  notes 
may  not  be  deserving  of  such  preservation ;  and  in  this  particular, 
as  in  all  others,  the  banker  must  exercise  his  judgment. 

The  law  in  relation  to  endorsers  renders  them  liable  only  on  due 
notice  of  the  non-payment  of  the  endorsed  note.  This  avenue  of 
loss  is  felt  but  seldom  in  large  cities,  but  in  the  country  it  pro- 
duces constant  danger.  A  country  banker,  therefore,  must  know 
where  endorsers  reside,  and  usually  the  information  can  be  obtained 
most  readily  when  each  note  is  discounted,  and  from  the  person 
who  brings  it  for  discount.  The  information  can  be  written  on  the 
note  under  the  name  of  the  endorser,  and  it  will  serve  as  a  direc- 
tion to  the  notary  public,  should  the  note  be  protested  for  non- 
payment. The  laws  of  New  York  required,  formerly,  that  the  notice 
of  non-payment  should  be  forwarded  by  mail  to  the  post-office 
nearest  to  the  residence  of  the  endorser.  This  imposed  on  the 
banker  a  knowledge  of  postal  locations  that  added  much  to  the 
difficulty  of  his  position.  The  law  has  since  meliorated  the  diffi- 
culty by  rendering  a  notice  sufficient  if  directed  to  the  town  in 
which  an  endorser  resides. 

As  a  banker  will  lend  to  the  extent  of  his  ability,  that  he  may 
make  for  his  bank  all  the  gains  in  his  power,  he  must  be  well  ac- 
quainted with  the  pecuniary  means  and  abilities  of  his  bank.  He 
can  keep  on  his  table  a  summary  showing  the  precise  amount  of 
his  funds  and  where  they  are  situated,  and  of  what  they  are  com- 
posed ;  also  an  aggregate  of  his  various  liabilities.  Such  a  sum- 
mary, when  corrected  daily,  or  more  frequently  if  necessary,  will 
constitute  a  chart  by  which  he  will  be  able  to  judge  whether  he 
can  lend,  or  whether  he  must  retrench  existing  loans.  The  funds 
that  will  be  adequate  to  any  given  amount  of  liability  a  banker 
must  learn  by  experience,  embarrassed  as  he  will  be  by  a  want  of 
uniformity  in  the  results  of  his  experience,  at  different  periods. 
Every  bank  must  be  liable,  momentarily,  to  demands  for  payment 
of  its  deposits  (and  bank  notes,  if  it  issues  any)  beyond  its  pres- 
ent funds.  Practically,  however,  if  a  banker  has  funds  enough,  day 
by  day,  to  meet  the  requirements  of  the  day,  he  has  funds  enough. 


THE    PRESIDENT.  37 

"'Sufficient  for  the  day  is  the  evil  thereof,"  is  a  proverb  peculiarly 
applicable  in  banking. 

But  a  banker  must  not  be  satisfied  by  knowing  that  his  funds 
of  to-day  will  be  sufficient  for  the  wants  of  the  day.  He  must 
possess  a  reasonable  assurance  that  the  same  will  be  his  position 
"to-morrow,  and  to-morrow,  to  the  end  of  time."  To  gain  this  as- 
surance, he  ought  to  keep  also  before  him  one  or  more  lists  in  detail 
of  his  prospective  resources,  showing  what  notes  and  acceptances 
will  be  payable  to  the  bank  daily  for  some  weeks  or  months  ahead, 
and  where  they  are  payable.  With  such  lists,  and  a  knowledge  of 
the  reality  of  the  paper  thus  going  onward  to  maturity,  he  will 
be  able  t6  judge  whether  his  prospective  resources  will  need  the 
aid  of  his  existing  unemployed  funds;  or  whether  he  may  loan 
them,  and  even  extend  his  liabilities  in  anticipation  of  a  prospective 
surplusage  of  resources. 

By  means  of  such  lists  as  we  have  just  described,  should  a  banker 
discover  that  his  existing  resources  will  be  small  during,  say,  the 
month  of  June,  he  can  aid  the  defect  by  discounting  in  the  pre- 
ceding May,  April  or  March,  paper  that  will  mature  in  June.  By 
thus  regulating,  prospectively,  his  future  resources,  he  can  be  always 
provided  with  funds.  And  that  a  banker  may,  at  all  times,  be 
master  of  his  resources,  he  should  never  promise  prospective  loans, 
or  make  loans  with  any  promise  of  their  renewal.  The  more  he 
keeps  uncommitted,  the  better  will  he  be  able  to  accommodate 
himself  to  future  exigencies.  Banking  is  subject  to  sufficient  uncer- 
tainties, without  unnecessarily  aggravating  them  by  prospective  agree- 
ments. A  banker  may  be  unable  to  fulfill  such  pledges,  and  be  thus 
compelled  to  falsify  his  promises ;  or,  he  may  be  able  to  fulfill  them 
only  at  a  sacrifice  of  the  interests  of  his  bank,  and  thus  be  placed 
in  the  unwholesome  dilemma  of  injuring  his  personal  character,  or 
of  preventing  the  injury  only  by  a  sacrifice  of  the  interests  of  his 
bank. 

A  banker  is  compelled  to  employ  officers  to  whom  he  intrusts 
his  vaults  and  their  contents.  Robberies  are  often  committed  by 
persons  thus  intrusted,  and  some  such  robberies  have  remained  long 
concealed.  The  banker  cannot  be  responsible  for  all  such  occur- 
rences ;  still,  vigilance  can  accomplish  much  in  the  way  of  security 
against  mischances,  and  the  banker  is  responsible  for  the  exercise 
of  all  practicable  vigilance.  Robberies  and  frauds  possess  usually 
some  discoverable  concomitants.  No  man  plunders  to  accumulate 
property  that  is  not  to  be  used.  Its  use,  therefore,  which  can  rarely 
be  wholly  concealed,  is  a  clue  which  a  vigilant  eye  can  trace  to 
the  plunderer.  Nearly  every  plunderer  is  a  prodigal,  and  may 
thereby  be  detected  ;  nearly  every  plunderer  is  needy,  and  should 
therefore  be  suspected.  The  banker  should  know  human  nature, 
and  be  able  to  trace  effects  to  their  causes,  and  to  deduce  effects 


38  PRACTICAL    BANKING. 

from  causes.  To  this  extent  he  is  answerable  for  the  safety  of  his 
bank.  The  sentinel  whose  post  happens  to  be  surprised  by  an 
enemy  may  escape  punishment  as  a  criminal,  but  he  can  rarely 
gain  commendation  for  vigilance,  or  escape  censure  for  carelessness. 

To  permit  overdrafts  is  to  make  loans  without  endorsers,  and 
without  the  payment  of  interest.  It  is,  moreover,  to  empower  a 
dealer  to  control  your  resources.  No  mode  of  lending  money  can 
be  more  inconsistent  with  all  safe  banking,  and  it  should  never  be 
permitted.  Still,  every  man  who  keeps  a  bank  account  can  draw 
checks  for  an  amount  exceeding  his  balance  in  bank;  nor  can  the 
banker  personally  supervise  the  payment  of  checks.  A  vigilant 
banker  will,  however,  provide  vigilant  subordinate  officers :  "  The  eye 
of  the  master  maketh  diligent,"  say  the  Scriptures.  An  intelligent 
and  careful  teller  will  soon  learn  whom  he  must  watch ;  but,  after 
all  precautions,  an  overdraft  may  be  perpetrated,  and,  whether  by 
accident  or  design,  the  bookkeeper  should  forthwith  report  to  the 
banker  the  occurrence,  and  he  must  act  thereon  as  his  judgment 
shall  deem  proper. 

No  system  of  banking  can  escape  the  casualty  of  doubtful  debts. 
Usually  the  most  favorable  time  to  coerce  payments  is  when  they 
first  become  payable.  Then  the  debtor  has  expected  to  pay,  and  if 
he  is  then  in  default  no  certain  dependence  can  be  made  on  his 
subsequent  promises.  He  is  also  usually  less  offended  by  a  legal  en- 
forcement of  payments  when  they  are  promptly  enforced,  and  when 
he  knows  the  creditor  is  disappointed  by  the  default,  than  he  is 
afte-r  the  default  has  been  tacitly  acquiesced  in  by  a  long  forbear- 
ance of  coercive  measures.  Additional  security,  when  necessary,  can 
also  be  more  readily  obtained  at  the  time  of  the  default,  than  it 
can  after  the  debtor  has  become  reconciled  by  time  to  his  dishon- 
orable position.  His  credit  is  better  now  than  it  will  be  subse- 
quently, and  he  can  more  readily  now  than  subsequently  obtain  re- 
sponsible endorsers.  In  relation  to  the  extension  of  time  on  re- 
ceiving additional  security  on  a  weak  debt,  any  extension  that  is 
productive  of  security  is  a  less  banking  evil  than  insecurity;  just 
as  any  protraction  of  disease  that  results  in  health  is  a  less  physi- 
cal evil  than  death. 

A  banker  will  be  often  subjected  to  importunity  by  persons  who 
will  desire  a  deviation  from  the  usual  modes  of  banking.  They 
will  propose  a  relaxation  of  good  rules,  and  allege  therefor  some 
pressing  emergency ;  but  if  the  relaxation  involves  any  insecurity,  any 
violation  of  law  or  of  official  duty,  the  banker  should  never  sub- 
mit, even  when  the  result  may  promise  unusual  lucrativeness  to  his 
bank.  While  a  banker  adheres  with  regularity  to  known  forms  of 
business  and  settled  principles,  Providence  is  a  guarantee  for  his 
success ;  but  when  he  deviates  from  these  Providence  is  almost 
equally  a  guarantee  of  disaster,  both  personal  and  official. 


THE    PRESIDENT.  39 

Banking  is  a  business,  and  should  be  reciprocally  beneficial  to 
the  borrower  and  the  lender.  When  a  borrower's  business  cannot 
yield  the  requisite  reciprocity  of  benefit,  he  will  often  attempt  to 
mend  the  defect  by  pertinacity  of  application,  and  by  persuasions 
addressed  to  the  directors  of  a  bank  personally,  as  well  as  to  the 
banker ;  and  by  servility  and  sycophancy.  Such  conduct  is  a  strong 
symptom  of  some  latent  defect  in  the  applicant's  pecuniary  posi- 
tion, and  the  appliances  should  strengthen  a  banker  in  his  refusal 
of  loans  rather  than  facilitate  their  application.  Loans  thus  obtained 
rarely  result  favorably  to  the  lender. 

No  man  is  safe  when  engaged  in  a  speculation,  especially  when 
the  price  of  the  article  that  he  purchases  is  above  the  usual  cost 
of  its  production.  The  speculator's  intellect  soon  loses  its  control 
over  him  and  he  will  be  controlled  by  his  feelings,  and  they  are 
unnaturally  excited.  He  becomes  a  monomaniac  in  the  particular 
concern  with  which  he  is  engaged.  He  will  increase  his  purchases 
beyond  all  moderation,  and  at  prices  which  he  himself,  when  he 
commenced  his  purchases,  would  have  deemed  ruinous.  Many 
banks  are  destroyed  by  such  speculators.  A  bank  will  loan  to  them 
till  its  safety  seems  to  require  that  the  speculation  must  be  up- 
held against  a  falling  market ;  and  the  effort  is  made  till  the  con- 
tinued decline  in  prices  ruins  both  speculators  and  sustaining 
bank. 

When  a  debtor  arrives  at  a  certain  magnitude  of  indebtedness 
he  becomes  the  master  of  his  creditor,  who  is  somewhat  in  the  po- 
sition of  Jonah  when  swallowed  by  the  whale.  The  debtor  can  say 
to  a  bank  thus  circumstanced  that  to  stop  discounting  for  him  will 
ruin  him,  and  that  his  ruin  will  involve  a  loss  of  the  existing  debt. 
No  prudent  banker  will  be  placed  in  such  a  position,  but  should 
any  banker  lapse  into  so  sad  an  error,  Jie  will  rarely  mend  his  po- 
sition by  yielding  to  the  proposed  necessity  for  further  loans.  He 
had  better  brave  the  existing  evil  than  yield  to  an  argument  which, 
if  already  too  potent  to  be  disregarded,  will  acquire  additional 
strength  by  every  further  discount,  and  render  his  inevitable  fall 
more  disastrous  to  his  stockholders  and  more  disreputable  to  him- 
self. 

With  respect  to  his  contingent  expenses,  the  more  a  banker  can 
reduce  their  amount,  the  more  easily  will  he  make  reasonable  divk 
dends  of  profit  among  his  stockholders,  without  an  undue  expan- 
sion of  loans  and  consequent  anxiety  to  himself.  The  income  of  a 
bank  is  only  an  aggregate  of  petty  accumulations.  Every  unnecessary 
expenditure  of  one  hundred  dollars  by  the  bank  will  nullify  the  in- 
terest on  four  ninety-day  loans  of  fifteen  hundred  dollars  each — 
loans  often  withheld  from  meritorious  claimants.  The  economy  of 
which  we  speak  is  not  any  unjust  abridgement  of  properly  remuner- 
ative salaries  to  faithful  officers  and  servants,  who  should,  however, 


40  PRACTICAL    BANKING. 

labor  diligently  and  perseveringly  in  their  vocations,  as  men  labor 
in  other  employments,  so  that  the  bank  may  economize  in  the  num- 
ber of  its  agents,  instead  of  economizing  in  the  magnitude  of  their 
salaries.  A  hundred  dollars,  or  a  thousand,  when  contrasted  with 
the  capital  of  a  bank,  may  seem  a  small  matter,  and  probably  bank 
expenditures  are  often  incurred  under  such  a  contrast;  but  the  true 
contrast  lies  between  the  expenditure  and  the  net  percentage  of  a 
bank's  gains.  A  bank  whose  net  income  will  not  exceed  the  legal 
rate  of  interest  possesses  no  fund  from  which  to  squander.  And 
banks  often  expend  an  unduly  large  part  of  their  capital  in  archi- 
tecture to  ornament  the  city  of  their  location,  or  to  rival  some 
neighboring  institution,  whose  extravagance  ought  to  be  shunned, 
not  followed.  No  person  has  yet  shown  why  banks  should  be  built 
like  palaces,  while  the  owners  of  the  banks  are  to  a  good  extent 
poor,  and  live  humbly.  The  custom  is  perhaps  founded  on  the  de- 
lusion of  deeming  a  great  capital  identical  with  great  wealth.  When 
several  men,  for  any  purposes  of  gain,  unite  their  several  small  capi- 
tals, they  may  well  need  a  larger  building  and  more  agents  than 
each  man  would  require  were  he  unassociated ;  but  that  the  asso- 
ciation can  afford  an  organization  increased  in  splendor  as  much 
as  in  magnitude,  is  a  fallacy  somewhat  analogous  to  the  blunder 
of  the  Irishman,  who,  hearing  that  his  friend  intended  to  walk 
forty  miles  during  a  day,  said  that  he  would  walk  with  him,  and 
then  they  could  walk  eighty  miles. 

When  solicited  by  a  neighbor  or  a  friend,  few  men  possess  vigor 
enough,  or  conscientiousness  enough,  to  refuse  a  recommendation, 
or  to  state  therein  all  they  suspect  or  apprehend.  They  will  studi- 
ously endeavor  not  to  make  themselves  pecuniarily  responsible  by 
any  palpable  misrepresentation;  hence  they  will  so  qualify  the  rec- 
ommendation that  it  will  admit  of  a  construction  consistent  with 
truth ;  but  the  qualification  will  be  so  enigmatical  or  subtle  that 
the  banker  will  not  interpret  it  as  the  recommender  will  show  sub- 
sequently it  ought  to  have  been  interpreted.  Besides,  the  man  who 
merely  recommends  a  loan  acts  under  circumstances  that  are  much 
less  favorable  to  caution  than  the  man  who  is  to  lend.  When  we 
are  in  the  act  of  making  a  loan,  our  organization  presents  the 
danger  with  a  vividness  that  is  not  excited  by  the  act  of  recommend- 
ing. To  believe  speculatively  that  we  will  suffer  the  extraction  of  a 
tooth,  is  a  wholly  different  matter  from  sitting  down  and  submit- 
ting to  the  operation.  Suicide  would  be  far  more  common  than 
it  is,  if  a  man  could  feel,  when  the  act  was  to  be  performed,  as 
he  feels  when  he  only  prospectively  resolves  on  performing  it.  This 
preservative  process  of  nature  no  banker  should  disregard  by  sub- 
stituting any  man's  recommendation  for  the  scrutiny  of  his  own 
feelings  and  judgment  at  the  time  when  the  loan  is  to  be  con- 
summated ;  though  he  may  well  give  to  recommendations  all  the 


THE    PRESIDENT.  41 

respect  which  his  knowledge  of  the  recommender  may  properly 
deserve. 

By  acting  according  to  the  dictates  of  his  own  judgment,  a  man 
strengthens  his  own  judgment  as  he  proceeds ;  while  a  man  who 
•subordinates  his  judgment  to  other  men's  is  continually  debilitating 
his  own.  Nothing  also  is  more  fallacious  than  the  principle  on 
which  we  ordinarily  defer  to  the  decision  of  a  multitude  of  coun- 
selors. If  fifty  men  pull  together  at  a  cable,  the  pull  will  com- 
bine the  strength  of  one  man  multiplied  by  fifty ;  but  if  fifty  men 
deliberate  on  any  subject,  the  result  is  not  the  wisdom  of  one  man 
multiplied  by  fifty,  but  at  most  the  wisdom  of  the  wisest  man  of 
the  assemblage ;  just  as  fifty  men,  when  they  look  at  any  object, 
can  see  only  what  can  be  seen  by  the  sharpest  single  vision  of  the 

>up ;  they  cannot  combine  their  vision  and  make  thereof  a  lens 
powerful  as  the  sight  of  one  man  multiplied  by  fifty.  A  banker 

ly,  therefore,  well  resort  to  other  men  for  information,  but  he 
differ  from  them  all,  and  still  be  right ;  any  way,  if  he  perform 
ic  dictates  of  his  own  judgment,  he  performs  all  that  duty  re- 
quires; if  he  act  otherwise,  he  performs  less  than  his  duty.  Let 
the  counsel  of  your  own  heart  stand,  says  the  Bible ;  and,  by  way 
of  encouragement,  it  adds,  that  a  man  can  see  more  of  what  con- 
cerns himself,  than  seven  watchmen  on  a  high  tower. 

As  virtue's  strongest  guarantee  is  an  exception  from  all  motive  to 
commit  evil,  a  banker  must  avoid  all  engagements  that  may  make 
him  needy.  If  he  wants  to  be  more  than  a  banker,  he  should 
cease  to  be  a  banker.  Should  he  discover  in  himself  a  growing 
tendency  to  irritability,  which  his  position  is  apt  to  engender,  let 
him  resist  it  as  injurious  to  his  bank  and  his  peace;  and  if  he 
should  find  himself  popular,  let  him  examine  whether  it  proceeds 
from  the  due  discharge  of  his  duties.  A  country  banker  was  some 
few  years  ago  dismissed  from  a  bank  which  he  had  almost  ruined, 
and  was  immediately  tendered  an  honorary  public  dinner  by  the 
citizens  of  his  village,  into  whose  favor  his  misdeeds  had  unwisely 
ingratiated  him.  The  service  of  massive  plate  that  was  given  to  a 
president  of  the  old  United  States  Bank  was  in  reward  of  com- 
pliances which  soon  after  involved  in  disaster  every  commercial 
interest  of  our  country.  Could  we  trace  actions  to  their  source, 
these  mistakes  of  popular  gratitude  would  never  occur.  The 
moroseness  that  we  abhor  proceeds  often  from  a  sensitiveness 
that  is  annoyed  at  being  unable  to  oblige  ;  while  the  amiability 
that  is  applauded  proceeds  from  an  imbecility  that  knows  not  how 
to  refuse. 

A  banker  should  possess  a  sufficiency  of  legal  knowledge  to  make 
him  suspect  what  may  be  defects  in  proffered  securities,  so  as  to 
submit  his  doubts  to  authorized  counselors.  He  must,  in  all  things, 
be  eminently  practical.  Every  man  can  tell  an  obviously  insufficient 


42  PRACTICAL    BANKING. 

security,  and  an  obviously  abundant  security;  but  neither  of  these 
constitute  any  large  portion  of  the  loans  that  are  offered  to  a 
banker.  Security  practically  sufficient  for  the  occasion  is  all  that  a 
banker  can  obtain  for  the  greater  number  of  the  loans  he  must 
make.  If  he  must  err  in  his  judgment  of  securities,  he  had  better 
reject  fifty  good  loans  than  make  one  bad  debt;  but  he  must  en- 
deavor not  to  err  on  the  extreme  of  caution  or  the  extreme  of  tem- 
erity; and  his  tact  in  these  particulars  will,  more  than  any  other, 
constitute  the  criterion  of  his  merits  as  a  banker. 


DIRECTORS'  MEETINGS  AND  DISCOUNTING. 


CHAPTER  VII. 
DIRECTORS'    MEETINGS   AND    DISCOUNTING. 

We  may  properly  open  this  chapter  with  some  general  remarks 
concerning  the  duties  of  bank  directors.  Whatever  may  be  their 
shortcomings  they  usually  begin  their  duties  with  honest  intentions 
toward  their  stockholders  and  the  public.  The  misconduct  which 
may  supervene,  will  proceed  from  temptations  incident  to  their 
office,  and  perhaps  from  the  absence  of  well-digested  notions  of 
their  duties.  Some  years  ago,  a  person  was  asked  whether  he  would 
accept  the  office,  then  vacant,  of  director  in  a  bank.  After  delib- 
erating, he  replied,  that  as  the  office  might  result  in  some  benefit 
to  him,  he  would  accept.  When  the  answer  was  reported  to  the 
Board  who  were  to  fill  the  vacancy,  they  refused  to  appoint  him, 
lest  he  should  sit  at  the  Board  mousing  to  catch  something  bene- 
ficial to  himself,  while  they  wanted  a  director  who  would  accept 
office  to  benefit  the  bank.  A  man  ought  to  watch  his  own  inter- 
est, when  conducting  his  own  affairs,  but  when  he  is  acting  offici- 
ally, he  should  lose  himself  in  his  public  duties.  We  expect  a 
soldier  to  sacrifice  his  life,  if  necessary,  to  the  discharge  of  his  duty, 
and  we  should  condemn  him  for  professing  a  less  self-denying 
creed,  how  much  soever  our  knowledge  of  human  fallibility  might 
induce  us  to  pardon  his  short-comings,  when  death  should  obstruct 
his  path.  Fortunately  the  performance  of  bank  duties  will  peril 
only  some  forbearance  from  pecuniary  acquisitions,  and  our  creed 
ought  to  be  self-denying  enough  to  renounce  these,  instead  of 
avowing  them  to  be  the  motive  of  our  services ;  nor  is  the  prin- 
ciple new.  The  law  will  not  permit  a  trustee  to  derive  any  indi- 
rect benefit  from  his  trust,  or  any  judge  or  juror  to  decide  in  his 
own  controversies ;  and  the  State  of  New  York  has,  in  its  Constitu- 
tion, consecrated,  the  principle,  by  prohibiting  our  legislators  from 
regulating  their  own  compensation,  or  even  the  number  of  days 
which  shall  be  occupied  in  legislative  duties.  In  some  cities,  also, 
no  civic  officer  can  become  legally  interested  in  any  municipal  con- 
tract ;  and  who  censures  not  some  recent  high  officers  of  our  Na- 
tional Government,  for  participating  in  a  private  claim,  which  they 
officially  aided  in  adjusting  and  paying.  Thus  thinking,  the  presi- 
dent of  a  large  railroad  corporation  of  New  York  refused  to  sup- 


44  PRACTICAL    BANKING. 

ply  iron  for  his  road,  though  his  associate  directors,  with  the  com- 
plaisance which  is  as  vicious  as  it  is  common,  offered  him  the  con- 
tract. In  this  case,  no  contractor  could  have  been  more  eligible^ 
but  the  rejector  established  a  precedent  that  is  more  profitable  for 
his  corporation  than  the  money  it  would  have  saved  in  purchasing 
the  iron  of  him. 

The  remuneration  of  bank  directors,  consists,  too  often,  in  an 
indefinite  claim  for  bank  loans.  This  claim  led  formerly  to  so 
great  an  absorption  of  the  funds  of  country  banks,  whose  capitals 
are  small,  that  a  law  was  enacted  by  the  New  York  Legislature 
interdicting  bank  directors*  from  engrossing,  directly  or  indirectly, 
more  than  a  third  part  of  the  capital  of  their  respective  banks ;  a 
quota  which  is,  in  some  banks,  divided  equally  among  the  directors, 
irrespective  of  any  business  merits  of  the  borrower.!  This  mode  of 
compensation,  when  founded  on  ample  security  for  the  borrowed 
money,  and  when  the  amount  taken,  directly  or  indirectly,  is  limited 
to  the  legal  quota,  may,  in  small  banks,  constitute  a  less  objectionable 
mode  of  remunerating  directors  than  any  other  indirect  mode,  or  than 
most  other  direct  modes.  A  man  may,  however,  very  properly  refuse 
the  office  of  bank  director,  unless  he  can  obtain  for  his  services  a  sat- 
isfactory pecuniary  compensation ;  and  banks  must  comply  with  such 
a  requirement,  if  suitable  men  are  not  otherwise  obtainable ;  but  such 
a  contingency  promises  to  be  remote,  under  the  desire  for  acci- 
dental distinctions  by  our  citizens,  consequent,  probably,  on  their 
legal  equality.  But  when  such  a  contingency  shall  occur,  a  direct 
compensation  will  generally  be  purer  than  any  indirect,  and  a  defi- 
nite compensation  cheaper  than  an  indefinite ;  and  usually  money  is 
the  most  economical  mode  of  paying  for  services  that  are  not  to  be 
deemed  honorary. 

The  law  usually  regards  bank  directors  as  an  entirety  under  the 
title  of  a  Board.  The  duties  and  powers  which  are  usually  conferred 
on  the  board  by  the  National  and  State  laws  may  be  classed  as 
legislative,  supervisory,  and  appointing.  The  legislative  power  con- 
sists in  creating  such  offices  as  the  business  of  the  bank  shall 
render  necessary,  regulating  their  duties  and  salaries ;  directing  the 
modes  in  which  the  bank  shall  be  conducted,  and  generally  all  that 
pertains  to  the  management  of  the  stock,  property,  and  effects  of 
the  corporation.  The  appointing  power  consists  in  selecting  proper 
incumbents  for  the  created  offices ;  while  the  supervisory  power  is 
indicated  by  all  the  foregoing,  and  by  the  ability  to  dismiss  the 
appointees  at  pleasure.  But  a  man  cannot  properly  supervise 

*  This  law,  like  most  other  legal  regulations  of  bank  directors,  was  made  before  the 
existence  of  banking  associations ;  hence  the  directors  of  such  associations  are  not  included 
therein. 

+  The  National  Banking  Law  limits  the  amount  that  may  be  loaned  to  any  applicant. 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  45 

himself  in  the  performance  of  public  services,  nor  limit  and  regulate 
their  scope  and  extent,  nor  fix  his  compensation  therefor;  hence 
the  powers  of  the  board  can  be  exercised  efficiently  only  on  per- 
sons who  are  not  members  of  the  board.  Nor  is  the  inexpediency  of 
uniting  in  the  same  person  the  duties  of  grantor  and  grantee, 
master  and  servant,  agent  and  principal,  a  contrivance  of  man ;  it 
proceeds  from  his  organization.  No  person  can  sit  at  a  board  of 
directors  without  observing  that  agents  who  are  not  directors,  are 
supervised  more  freely  than  agents  who  are  directors.  A  practical 
admission  of  this  is  evinced  by  some  discount  boards,  who,  in  decid- 
ing on  paper  offered  by  directors,  vote  by  a  species  of  ballot,  while 
in  other  boards,  the  offered  notes  are  passed  under  the  table,  from 
seat  to  seat;  and  a  note  is  deemed  rejected,  if,  in  its  transit,  some 
director  has  secretly  folded  down  one  of  its  corners.  Had  the  United 
States  Bank  been  supervised  by  a  board  disconnected  from  execu- 
tive duties,  it  would  not  have  permitted  its  chief  officer  to  per- 
severe in  the  measures  which  ultimately  ruined  the  corporation, 
though  its  capital  was  thirty-five  millions  of  dollars.  Even  the 
separation  of  a  legislature  into  two  chambers,  checks  the  esprit  du 
corps,  and  pride  of  opinion  which  would  urge  one  chamber  into 
extremes,  with  no  means  of  extrication  from  a  false  position.  A 
separation  operates  like  the  break  of  continuity  in  an  electric  tele- 
graph, arresting  a  common  sympathy,  passion,  or  prejudice,  which, 
in  a  single  chamber,  rushes  irresistibly  to  its  object.  Still,  in  many 
banks  (the  Bank  of  England  included)  the  president  (entitled 
governor  in  the  Bank  of  England)  is  the  chief  executive  officer, 
as  well  as  head  of  the  legislative  department.  The  Bank  of  Eng- 
land is,  however,  controlled  by  twenty-four  directors,  the  largeness 
of  which  number  naturally  mitigates  the  influence  of  the  members 
iudividually,  and  hence  diminishes  ratably  the  objection  against  its 
executive  organization.  Such  an  organization  may  operate  well, 
where  the  board  consists  of  a  small  number  of  members,  yet  the 
good  is  not  a  consequence  of  the  organization,  but  in  despite 
thereof;  for,  whatever  weakens  the  power  of  supervision,  must  di- 
minish its  benefits.  The  joint-stock  banks  of  England  are  all  con- 
trolled by  officers  called  managers,  and  who  are  not  members  of 
the  board,  though  they  sit  thereat  ex  officio  for  mutual  explanation 
and  instruction. 

That  the  board  should  legislate,  supervise  and  appoint,  but  not 
execute,  occasioned  probably  the  exclusion  from  the  directorship 
that  early  prevailed,  and  widely  continues,  of  the  person  who  occu- 
pies the  office  of  cashier,  and  who,  with  us,  was  once  almost 
universally  the  chief  executive  bank  officer.  But  the  executive 
power,  located,  should  center  in  only  one  person ;  a  divided  re- 
sponsibility creating  necessarily  a  divided  vigilance.  Thirteen  men 
acting  as  an  executive  will  not  produce  the  vigilance  of  one  man 


46  PRACTICAL    BANKING. 

multiplied  by  thirteen,  but  rather  the  vigilance  of  one  man  divided 
by  thirteen.  The  inspection  of  a  picture  by  ten  thousand  promis- 
cuous men  will  not  detect  as  many  imperfections  in  it  as  the 
scrutiny  of  one  person,  intent  on  discovering  to  the  extent  of  his 
utmost  vigilance;  hence,  large  assemblies  refer  every  investigation 
to  a  small  committee,  the  chairman  of  which  is  expected  to  as- 
sume the  responsibility  of  the  examination,  while  the  other  mem- 
bers are  more  supervisors  than  actors.  Here,  again,  as  in  most  other 
modes  which  business  assumes  by  chance  apparently,  our  organiza- 
tion dictates  the  mode.  When,  therefore,  we  want  an  army  of  the 
highest  efficiency,  we  possess  no  alternative  but  to  intrust  it  to  a 
single  commander-in-chief ;  and  if  we  want  a  bank  of  the  highest 
efficiency,  as  respects  safety  and  productiveness,  we  must  intrust  it 
to  a  single  executive,  under  any  title  we  please ;  but  to  one  man, 
who  will  make  the  bank  the  focus  of  his  aspirations,  and  know 
that  on  his  prudence  and  success  will  depend  the  character  he 
most  affects,  and  the  duration  of  his  office,  with  all  its  valued  as- 
sociations and  consequences. 

If  the  proposed  organization  is  the  best  that  can  be  devised  for 
4  bank,  the  magnitude  of  power  to  be  delegated  is  no  proper  ar- 
gument against  its  delegation,  but  only  a  motive  for  prudence  in 
selecting  the  delegate.  A  man  of  known  skill  and  established  fidel- 
ity is  not  always  procurable  for  the  proposed  duties,  especially  by 
small  banks  that  cannot  render  available  a  breach  of  the  tenth 
commandment.  But,  providentially,  the  world  is  not  so  dependent  on 
a  few  eminent  men,  as  their  self-love  and  our  idolatry  may  believe. 
Every  well-organized  person  possesses  an  aptitude  to  grow  to  the 
stature  of  the  station  in  which  circumstances  may  place  him,  and 
some  of  the  most  successful  bankers  of  our  State  acquired  their 
skill  after  they  became  bankers.  The  like  principle  is  discoverable 
in  all  occupations,  the  highest  not  excepted.  Few  of  our  judges, 
generals,  diplomatists,  legislators,  or  civil  executives  were  accom- 
plished in  their  vocation  before  they  became  invested  therewith. 
Skill  is  consequent  in  some  degree  to  station  and  its  excitement, 
though  a  vulgar  error  expects  (what  is  impossible)  that  official  dex- 
terity and  competence  should  be  possessed  in  advance. 

On  the  chief  executive  should  be  devolved  the  responsibility  of 
providing  funds  to  meet  the  exigencies  of  the  bank;  hence,  he  is 
entitled  to  dictate  whether  loans  shall  be  granted  or  withheld,  and 
the  length  of  credit  that  shall  be  accorded  to  the  borrowers  re- 
spectively. With  him  rests  also  a  knowledge  of  the  banking  value 
of  each  customer;  he  should,  therefore,  be  permitted  to  select  from 
applicants  the  persons  to  whom  alone  loans  shall  be  granted.  The 
responsibility  should  also  be  cast  on  him  of  making  the  bank  pe- 
cuniarily profitable  to  the  stockholders ;  hence,  he  will  be  stimulated 
to  obtain  good  accounts,  and  to  extend  business  to  the  utmost  ca- 


DIRECTORS'   MEETINGS   AND   DISCOUNTING.  47 

pacity  that  his  judgment  will  justify.  On  his  untiring  vigilance 
should  be  reposed  the  safety  of  the  capital ;  hence,  no  loans  should 
be  granted  with  whose  security  he  is  dissatisfied,  nor  any  except 
those  with  which  he  is  satisfied — even  the  improper  negation  of  a 
loan  being  usually  a  small  evil  to  the  bank,  how  important  soever 
it  may  be  to  the  proposer.  The  Bank  of  England,  with  a  capital 
of  about  (including  surplus)  $90,000,000,  intrusts  the  loaning  thereof 
to  the  governor  alone.  He  has  under  him  a  sub-governor,  selected 
from  the  directors,  while  an  executive  committee,  designated  by  the 
board,  may  be  consulted  by  him  ;  but  the  committee  employs  itself 
in  digesting  matters  for  the  action  of  the  court  of  directors,  rather 
than  in  clogging  the  proceedings  and  diminishing  the  discretion  of  the 
governor.  All  the  joint-stock  banks  of  England  are  organized  with 
a  like  self-depending  executive,  under  the  name  of  general  manager, 
and  a  bank  organized  thus  to  grant  loans  at  all  times,  during  its 
business  hours,  will  present  a  great  inducement  to  customers  over 
a  bank  whose  discounts  are  accorded  at  only  stated  days,  and  after 
a  protracted  deliberation  by  directors — loans  being  often  useful  only 
when  obtained  promptly.  Even  the  due  protesting  of  dishonored 
paper,  and  notifying  of  endorsers — the  enforcement  of  payment,  or 
the  obtainment  of  security  on  debts  which  prove  to  be  unsafe, 
will  all  wholesomely  fall  under  the  control  of  the  chief  executive, 
by  reason  that  the  vigilance  of  one  person  can  control  them  bet- 
ter than  a  divided  vigilance ;  and  that  the  debts  having  come  into 
the  bank  by  his  agency,  his  self-love  is  interested  in  their  collect- 
ability.  He  must  feel  a  like  responsibility  against  losses  by  forgery, 
overdrawn  accounts,  the  depredation  of  burglars,  and  the  pecula- 
tion of  subalterns.  To  secure  in  the  highest  degree  his  vigilance  in 
these  particulars,  he  should  be  intrusted  with  the  selection  of  all 
subordinate  agents,  even  of  the  notary  and  attorneys.  At  least 
none  should  be  appointed  or  retained  with  whom  he  is  not  satis- 
fied. His  self-respect  cannot  be  too  much  fostered  by  the  board, 
and  no  measure  should  be  enforced,  and  no  loans  granted,  which 
can  wound  his  sensibility,  or  diminish  his  influence  with  his  subor- 
dinates or  the  customers  of  the  bank.  The  more  he  can  thus  be 
brought  to  identify  himself  with  the  bank,  the  more  the  bank  will 
be  exempt  from  the  disadvantages  which  make  corporations  con- 
trast unfavorably  with  private  establishments,  and  which  a  proverb 
alludes  to  in  saying  that  what  is  every  man's  business  is  nobody's. 
So  great  is  the  assimilation  to  their  bank  which  some  managers 
attain,  that  a  poignancy  of  solicitude  in  relation  to  the  debts  of  the 
bank,  the  preservation  of  its  credit  and  the  productiveness  of  its 
capital  become  the  greatest  evils  of  their  position,  especially  when 
they  are  predisposed  to  morbid  nervousness,  which,  with  disease  of 
the  heart,  their  position  induces  and  fosters.  Such  a  man  will  ob- 
tain from  his  board  all  the  information  it  can  yield  him  in  rela- 


48  PRACTICAL    BANKING. 

tion  to  the  pecuniary  responsibility  of  his  dealers;  and  the  directors 
should  give  him  their  opinion — not  mandatory,  to  relieve  his  re- 
sponsibility, but  to  inform  his  judgment,  though  he  will  soon  dis- 
cover that  his  only  safe  guide  will  consist  of  his  feelings  founded 
on  personal  observations  too  subtle  often  to  be  described,  much  less 
enumerated. 

His  salary  should  be  liberal,  for  nature  will  not  otherwise  produce 
the  activity  of  mind  and  body  that  are  essential  to  his  duties.  Be- 
sides, he  must  engage  in  no  private  business,  and  will  possess 
neither  leisure  nor  taste  to  attend  minutely  to  his  domestic  ex- 
penses. No  salary  can  equal  in  value  the  devotion  of  such  an  of- 
ficer;  still,  extravagance  is  unwise  as  an  example,  and  unnecessary 
as  a  stimulant.  The  more  capable  the  officer,  the  more  he  will  ap- 
preciate money,  and  instances  are  frequent  where  bank  services  of 
the  most  valuable  kind  are  accorded  on  salaries  that  would  be 
deemed  unsatisfactorily  small  by  officers  whose  habits  are  less  suited 
for  the  station. 

The  duties  of  a  board  will  rather  commence  than  end  with  the 
appointment  of  its  executive.  Their  proper  duties  are  supervisory. 
Nature  aids  the  discharge  of  such  duties  when  the  supervisor  is 
distinct  from  the  supervised ;  indeed,  one  of  the  most  difficult 
tasks  of  a  supervisor  consists  in  restraining  the  undue  captiousness 
that  is  natural  to  the  position.  The  president  of  the  bank,  as 
head  of  the  corporation,  cannot  perform  supervisory  duties  too  effi- 
ciently, and  he  may  well  be  entitled  to  a  pecuniary  compensation 
therefor.  He  should  deem  them  under  his  special  charge,  but  not  to 
supersede  therein  the  modified  duties  of  the  other  directors.  Super- 
vision over  the  manager's  official  proceedings  will  be  as  salutary  to 
him  as  proper  to  the  board.  Darkness  is  proverbially  unfavorable 
to  purity,  but  only  by  reason  of  the  concealment  it  creates ;  every 
other  means  of  concealment  is  equally  productive  of  impurity.  A 
man  can  easily  reconcile  to  his  judgment  and  conscience  what  can- 
not be  reconciled  to  disinterested  supervisors :  hence,  if  an  officer 
knows  so  little  of  human  nature  as  to  deem  supervision  offensive, 
he  is  unfit  to  be  trusted.  That  the  supervision  may  be  full,  it 
must  be  systematic.  Every  director  will  usually  attend  meetings  of 
the  board  in  a  degree  inverse  to  their  frequency,  but  twice  a  week, 
or  certainly  once,  where  the  bank  is  not  very  small,  will  be  as 
short  as  is  compatible  with  a  due  inspection,  singly,  of  the  loans, 
in  some  regular  order,  that  may  have  been  granted  by  the  manager 
since  the  last  session  of  the  board.  The  directors  will  thus  learn 
individually  whether  the  power  to  make  loans  has  been  prudently 
exercised ;  and  he  will  learn  the  opinion  which  any  of  the  board 
may  express  in  relation  to  the  borrowers  or  their  sureties,  especially 
in  cities  where  borrowers  are  generally  known  to  the  board ;  and  a 
manager  may  advantageously  defer  to  it  the  consummation  of  many 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  49 

loans  in  relation  to  which  his  own  information  is  questionable,  or 
about  which  he  desires  time  to  deliberate.  Such  a  deferring  will 
often  constitute  a  less  offensive  mode  of  avoiding  an  objectionable 
discount  than  a  direct  and  personal  refusal,  though  truly  the  kindest 
act  a  banker  can  perform,  next  to  granting  a  loan,  is  to  promptly 
inform  an  applicant  that  he  cannot  succeed,  when  the  banker 
knows  the  loan  will  not  be  granted. 

The  supervision  of  the  board  must  be  as  comprehensive  as  the 
powers  of  the  manager.  The  revisions  of  loans  will  enable  the 
board  to  ascertain,  not  merely  the  solvency  of  the  bank's  assets, 
but  whether  its  business  is  conducted  without  partiality,  or  un- 
wholesome bias  of  any  kind.  Nearly  every  undue  partiality  possesses; 
concomitants  that  may  lead  to  its  detection ;  for  instance,  an  un- 
usual laxity  of  security,  or  length  of  credit ;  with  unusual  frequency 
of  renewals  in  a  direct  form,  or  an  indirect,  so  as  to  screen  the 
operations.  A  manager,  properly  sensitive  of  his  reputation,  and 
properly  diffident  of  his  natural  infirmities,  will  be  reluctant  to 
grant  loans  to  his  relatives,  or  special  friends;  and  never  to  him- 
self, or  any  person  with  whose  business  operations  he  is  connected. 
To  enable  directors  to  judge  of  these  particulars,  a  regular  attend- 
ance at  the  stated  meetings  is  necessary;  but  memory  alone  must 
not  be  relied  on,  except  to  suggest  queries,  which  should  always  be 
capable  of  solution  by  proper  books  and  indexes,  that  must  be 
within  reach  of  the  directors;  who  should  habitually  inspect  the 
books,  that  the  practice  may,  in  no  case,  seem  an  invidious  pecu- 
liarity. In  all  scrutinies,  however,  the  directors  should  remember 
that  in  mere  judgment  and  expediency  they  may  differ  from  the 
manager,  and  he  may  still  be  right,  for  banking  constitutes  his 
business,  while  to  them  it  is  an  incidental  occupation.  Lenity  is 
proper  even  to  his  undoubted  errors,  when  they  are  of  a  nature 
which  experience  may  correct;  but  time  will  only  inveterate  bad  in- 
tentions, and  their  first  unequivocal  appearance  should  produce  an 
unrelenting  forfeiture  of  his  office. 

The  board  must  understand  the  liabilities  of  the  bank  to  its  de- 
positors, bank-note  holders,  and  other  creditors ;  also  the  funds  of 
the  bank,  and  its  available  resources ;  so  as  to  judge  how  far  the 
honor  of  the  bank  is  safe  in  the  care  of  its  manager.  The  char- 
acter of  depositors  and  borrowers  are  also  proper  subjects  of  gene- 
ral scrutiny  by  the  board,  by  reason  that  the  reputation  of  a  bank 
is  inferable  from  the  reputation  of  its  dealers ;  not  that  disreputable 
people  should  be  rejected  as  depositors,  but  a  bank  is  not  an  ex- 
ception to  the  proverb  which  speaks  "  of  birds  of  a  feather ; "  and 
when  the  customers  of  a  bank  are  generally  respectable  in  their 
character  and  business,  we  may  be  sure  that  the  management  of  the 
bank  is  at  least  ostensibly  moral  and  mercantile. 

The  ticklers  of  a  bank  are  books  which  show  in  detail  the  debts 


50  PRACTICAL    BANKING. 

due,  prospectively  to  a  bank,  and  the  days  of  payment.  The  ag- 
gregate footing  of  the  ticklers  will  accordingly  exhibit  the  amount  of 
loans  not  yet  matured,  and  inductively  the  amount  that  is  past 
due.  The  information  which  relates  to  the  amount  past  due  is 
often  given  reluctantly,  but  a  knowledge  of  it  is  vastly  important 
in  the  proper  supervision  of  a  bank;  and  when  tested  by  the 
ticklers,  the  information  cannot  well  be  deceptious,  or  evaded.  In 
knowing  the  amount  of  past  due  loans,  the  board  can  pretty  ac- 
curately conjecture  the  character  of  the  bank's  customers.  Such 
loans  should  be  satisfactorily  explained  by  the  manager,  and  the 
means  he  is  taking  in  their  collection.  The  like  may  be  said  of 
over-drafts,*  which  are  rarely  permitted  by  American  bankers, 
though  in  England  they  seem  to  constitute  one  of  the  regular 
modes  of  advancing  money  to  customers.  Whether  they  shall  be 
permitted  is  within  the  proper  discretion  of  the  board,  and  should 
they  occur,  inadvertently,  the  occurrence  ought  to  be  manifested  to 
the  board.  An  exemption  from  losses  is  impracticable  in  long-con- 
tinued operations;  yet  all  grades  of  intellect  are  procurable,  hence 
the  retention  of  an  officer  is  unwise  when  his  results  are  unsatis- 
factory. Every  man  can  adduce  excuses  which  no  person  may  be 
able  to  controvert ;  but  when  miscarriages  are  frequent,  or  import- 
ant, the  board  should  assume  that  something  wrong  exists  and 
eludes  detection,  rather  than  that  nature  deviates  from  her  accus- 
tomed processes,  making  vigilance  unsafe,  and  skill  unprofitable. 
The  examination  of  vaults,  and  counting  of  money,  rarely  reveal 
defalcations,  till  the  defaulter  no  longer  endeavors  to  conceal  his 
delinquencies.  The  counting  is  not  pernicious,  if  the  board  choose 
to  amuse  their  vigilance  therewith;  but  we  have  not  attempted  to 
designate  modes  in  which  frauds  are  detectable ;  the  ingenuity  of 
concealment  being  naturally  as  great  as  the  ingenuity  of  detection. 
Besides,  the  detection  of  skillful  frauds  requires  a  greater  familiar- 
ity with  banking  accounts,  and  a  more  laborious  inspection  of  bank 
books,  than  can  ordinarily  be  expected  of  bank  directors.  For  the 
detection  of  frauds,  therefore,  the  best  practical  reliance  is  a  super- 
vision, in  the  way  we  have  indicated,  of  the  bank's  business,  and 
a  familiar  observation  of  the  general  conduct,  habits  and  expenses 
of  the  manager,  as  well  as  of  all  the  subordinate  officers;  the 
latter,  however,  are  more  especially  within  the  duties  of  the  man- 
ager. The  ruin  of  a  bank,  by  fraud,  commences  usually  in  the 
personal  embarrassment  of  the  delinquent,  contracted  by  improper 
self-indulgences,  or  the  assumption  of  secret  hazards.  Men  rarely 
plunder  till  their  conduct  is  otherwise  disorganized,  external  symp- 
toms of  which  observant  directors  may  discover.  A  bank  officer, 
therefore  (and  the  higher  his  official  position  the  more  urgent  the 

*  The  term  "over-draft"   means  that  the  depositor  has  drawn  for  more  money  than 
the  balance  to  his  credit. 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  51 

rule),  who  will  not  keep  disengaged  from  all  suretyship  and  from 
business  that  may  render  him  pecuniarily  necessitous,  is  as  unfit  to 
be  intrusted  with  a  bank,  as  a  nurse  who  frequents  small-pox  hospi- 
tals, is  unfit  to  be  trusted  with  unvaccinated  children.  In  men- 
ageries, animals  are  kept  peaceful  by  preventing  the  cravings  of 
hunger ;  bank  executives  require  a  similar  assuasive ;  not  by  glut- 
ting them  with  great  salaries,  but  by  preserving  them  from  ex- 
penditures unsuited  to  their  income,  and  from  pecuniary  liabilities. 
A  bank  manager  of  undoubted  wealth  presents  therein  the  best 
attainable  guaranty  against  misconduct,  and  is  entitled  to  greater 
freedom  of  action  in  his  personal  transactions  than  officers  of 
ordinary  circumstances ;  still  we  will  terminate  this  first  part  of 
our  undertaking,  by  venturing  the  advice,  that  when  a  man  wants 
to  be  more  than  a  bank  manager,  especially  when  he  wants  to 
employ  much  more  than  his  own  funds,  he  had  better  cease  from 
occupying  a  station  which  he  is  too  ambitious,  or  too  avaricious 
to  fill  under  restraints,  which  experience  shows  are  alone  safe. 

We  shall  now  consider  the  function  performed  by  a  bank  in  dis- 
counting paper.  First,  however,*  it  is  necessary  to  say  a  few  words 
respecting  capital,  since  it  is  from  the  peculiar  use  made  of  capital, 
in  the  production  and  distribution  of  wealth,  that  the  necessity  for 
banks  arises. 

Capital  used  in  production,  is  either  fixed  or  floating.  Fixed  capi- 
tal is  invested  in  lands,  buildings,  machinery,  mines,  canals,  railways 
and  their  equipments,  telegraphs,  &c.,  all  these  being  used  in  the 
creation  and  distribution  of  wealth.  Floating  capital  is  invested  in 
the  things  produced,  whether  raw  materials,  or  articles  completed, 
or  in  process  of  completion.  It  also  pays  for  the  labor  and 
other  service  ( wages  and  salaries )  necessary  to  production  and 
to  the  distribution  of  products.  The  processes  of  production 
are  very  numerous  and  distinct.  Each  producer,  when  he  has 
completed  his  part  of  these  processes,  desires  to  sell  his  product, 
realize  his  profit,  and  begin  again  with  fresh  materials.  The  quicker 
he  can  do  this,  and  the  oftener  he  can  repeat  it,  the  greater  will 
be  his  profit ;  for,  in  a  normal  state  of  things,  each  repetition  brings 
a  profit.  All  the  floating  capital  which  he  requires  is  enough  to 
enable  him  to  do  this  easily,  and  without  friction.  If  each  article 
were  sold  for  cash,  as  soon  as  completed,  and  no  store  of  raw  mate- 
rials had  to  be  kept  in  excess  of  immediate  wants,  the  minimum  of 
floating  capital  would  be  attained ;  and  if  the  fairly  estimated  profit 
were  always  realized,  the  wealth  of  the  producer  would  be  con- 
stantly increasing,  and  his  business  might  either  be  enlarged,  or  a 
surplus  safely  withdrawn'  for  outside  uses.  But  immediate  sale  of 
products  by  the  producer,  and  immediate  payment  for  them  by  the 

*  This  portion  of  the  chapter,  to  page  58,  is  from  the  pen  of  George  Walker,  concerning 
whom  proper  mention  is  made  in  the  preface  of  this  work. 


52  PRACTICAL   BANKING. 

buyer,  are  practically  impossible.  A  long  process  of  digestion  must 
be  gone  through  with  before  ultimate  payment  and  the  final  payer 
( who  is  the  consumer )  are  reached ;  and  consequently  the  producer 
cannot  immediately  sell,  aud  the  buyer  cannot  immediately  pay. 
Markets  may  be  dull,  or  overstocked,  and  buyers  may  be  either  slow 
to  come  forward,  or  come  without  ready  money.  Hence,  the  pro- 
ducer requires  additional  floating  capital  to  carry  his  products  till 
sold  ;  and  the  buyer  requires  credit  till  he  can  get  the  means  to 
pay  for  the  property  bought  by  its  resale.  But  a  sale  on  credit  is 
to  the  producer,  so  far  as  the  use  of  capital  is  concerned,  precisely 
like  carrying  the  property  without  sale.  Till  he  gets  back  the 
value  of  his  production,  he  must  depend  on  other  means  to  carry 
on  his  business.  He  must  find  the  necessary  capital  elsewhere,  or 
his  production  stops  till  payment  by  the  buyer  enables  him  to  start 
again.  But  a  healthy  business  cannot  stop ;  it  must  go  on  con- 
stantly and  evenly,  if  the  highest  economy  is  to  be  attained.  Stop- 
page means  idle  factories,  rusting  machinery,  unemployed  workmen. 
The  friction  and  loss  incident  to  stopping  and  starting  would  eat 
up  a  large  profit,  and  would  destroy  the  even  current  of  produc- 
tion upon  which  stability  of  prices  largely  depends.  The  producer 
cannot  stop ;  he  must  from  some  source,  get  the  money  to  go  on 
with,  and  fortunately  his  business  furnishes  the  basis  on  which  to 
get  it.  He  must  borrow  money  on  the  faith  of  the  property  sold.  He 
cannot,  it  is  true,  pledge  the  property  specifically,  for  he  has  sold 
it  and  parted  with  possession,  and  hence,  I  say,  he  must  borrow 
on  the  faith  and  not  on  the  pledge  of  it.  But  though  he  cannot 
pledge  the  property  itself,  he  pledges  what  represents  it,  namely, 
the  written  promise  of  the  buyer  to  pay  the  price  of  it  at  a  fixed 
future  date.  In  mercantile  language,  he  gets  the  buyer's  note  or 
bill  discounted,  and  here  comes  in  the  first  legitimate  function  of  the 
bank,  a  function  which  underlies  all  its  operations,  and  is  the  touch- 
stone of  the  regularity  of  its  business. 

To  reduce  it  to  a  definition  or  formula,  I  should  say  that  the 
first  and  most  important  function  of  a  bank  is,  by  the  use  of  the 
capital  which  it  controls,  to  bridge  over  the  periods  of  credit 
which  necessarily  intervene  between  production  and  consumption,  in 
such  a  manner  as  to  give  back  to  each  producer,  or  middleman, 
as  quickly  as  possible,  the  capital  invested  by  him  in  such  products, 
in  order  that  he  may  use  it  over  again  in  new  production  or  new 
purchases.  In  this  way  the  interruption  of  business,  which  would 
be  a  public,  as  well  as  a  private  loss,  is  avoided.  Thus  defined, 
banking  is  not  only  one  of  the  most  useful,  but  it  is  also  one  of 
the  most  safe  and  healthy  of  business  operations.  Its  safety  lies  in 
the  fact  that  every  loan  of  the  character  described,  is  based  on 
property  of  intrinsic  value ;  and  it  is  the  property  which,  in  the 
last  resort,  pays  all  the  loans  predicated  upon  it  in  its  progress  of 


DIRECTORS'   MEETINGS   AND  DISCOUNTING.  53 

transmission  from  the  producer  to  the  consumer.  It  gathers  value 
as  it  goes,  by  the  addition  of  all  intervening  profits  incident  to 
handling  and  resale,  and  on  final  sale  the  consumer  pays  the  first 
cost  and  all  those  profits  added  to  it.  This,  of  course,  is  on  the 
supposition  that  the  transactions  have  been  fairly  profitable.  In  the 
case  supposed  the  property  has  been  the  real  debtor  throughout, 
and  the  real  payer  of  the  discounts.  It  has  purchased  the  paper 
which  was  the  subject  of  each  discount  in  succession,  and  has 
finally  been  exchanged  with  consumer  for  the  cash  which,  in  effect, 
pays  them  all.  The  several  makers  of  the  paper,  though  debtors 
in  form,  are  only  insurers,  or  guarantors,  in  fact.  They  pledge  their 
respective  property  to  the  payment  of  the  loans ;  but  the  primary  and 
generally  sufficient  pledge  is  the  property  for  which  the  notes  are 
given.  The  wealth  of  the  makers  is  a  necessary  margin  or  guar- 
anty, because  the  property  sold  may  be  destroyed,  or  the  value  may 
fall,  or  some  one  of  its  successive  holders  may,  by  misfortune  or 
fraud,  divert  its  proceeds  from  their  legitimate  application,  namely, 
payment  to  the  last  seller.  In  a  great  majority  of  cases,  however, 
no  such  contingency  happens,  and  the  guaranty  is  not  resorted  to. 
The  intervening  profits  are  an  additional  safeguard,  inasmuch  as 
each  party,  when  he  sells,  ought  to  receive  a  larger  note  than  he 
gave  when  he  bought  the  goods. 

From  this  analysis  of  the  origin  of  bank  discounts  it  will  be 
seen  that  the  common  maxim  among  bankers — that  the  safest 
loans  are  on  mercantile  paper — is  not  only  justified  by  experience, 
but  rests  upon  the  simplest  and  clearest  scientific  principles. 

In  the  reign  of  the  first  Napoleon,  France  had  a  very  enlightened 
finance  minister  in  M.  Mollien.  In  advising  the  emperor  as  to  the 
proper  administration  of  the  Bank  of  France,  Mollien  laid  great  stress 
upon  the  principles  which  I  have  just  enunciated.  "He  undertook  to 
show  that  no  discount  is  regular,  except  that  of  genuine  bills  of 
exchange,  given  in  settlement  of  a  completed  transaction,  in  which 
three  parties*  have  cooperated,  and  by  means  of  which  the  ac- 
ceptor is  put  in  possession  of  property  of  actual  value,  equal  to 
the  amount  of  his  acceptance." 

"The  discount  of  genuine  bills  of  exchange,  which  represent  the 
products  of  labor,  which  the  wants  of  consumers  have  called  into 
being,  and  which  their  savings  are  adequate  to  purchase,  ought  to 
be  exclusively  preferred  by  banks;  it  is  the  real  pivot  of  their  or- 
ganization." 

*  The  three  parties  are,  the  drawer,  the  payee,  and  the  acceptor.  When  the  buyer  gives 
his  note  instead  of  a  bill  of  exchange  on  a  third  party  ( as  is  more  frequently  the  practice 
in  certain  parts  of  this  country),  the  property  is  pledged  indirectly,  and  only  two  parties  en- 
gage in  the  transaction,  while  in  the  case  of  a  bill  drawn  on  the  acceptor,  who  is  also  the 
consignee  of  the  property  (as  is  the  practice  in  the  cotton,  grain,  and  provision  trades),  the 
pledge  is  specific,  and  the  paper  is  paid  out  of  the  proceeds  of  sale. 


54  PRACTICAL   BANKING. 

"  He  reproached  the  Bank  of  France  with  paying  too  little  atten- 
tion to  the  discounts  of  genuine  bills  of  exchange  guaranteed  by 
merchandise  in  store,  which  was  in  demand  for  consumption,  and 
which  the  income  of  the  consumers  was  adequate  to  pay  for." 

Keeping  in  mind  the  definition  already  given,  and  which  I  now 
repeat,  that  the  true  function  of  banking  is  to  bridge  over  the 
periods  of  credit  which  necessarily  intervene  between  production 
and  consumption,  by  immediately  advancing  on  the  faith  of  the 
property,  to  each  producer  and  middleman,  his  capital  invested  in 
the  product,  and  his  profit  earned  in  producing  or  handling  it,  it 
is  easy  to  analyze  and  to  test  all  loans  and  discounts  of  a  differ- 
ent sort  which  banks  are  in  the  habit  of  making.  The  loans  which 
come  the  nearest  in  principle  to  those  embraced  in  the  definition, 
are  such  as  are  made  upon  the  specific  pledge  of  property  although 
not  yet  sold.  These  may  be  strictly  legitimate,  or  highly  specula- 
tive, according  to  circumstances.  When  property  is  on  its  way  to  a 
market,  with  the  certainty  or  probability  of  early  sale,  according  to  a 
well  established  course  of  trade,  it  is  strictly  legitimate  to  loan  upon 
it,  if  the  loan  is  made  with  a  proper  margin.  Of  this  character 
are  all  bills  of  exchange  drawn  against  produce  or  merchandise, 
consigned  for  sale,  either  in  the  home  or  foreign  market.  If  ac- 
companied by  a  specific  pledge  of  the  property,  they  are  called  docu- 
mentary bills,  because  the  title  is  authenticated  by  bills  of  lading, 
and  protected  by  policies  of  insurance,  which  accompany  the  paper. 
The  merchandise  is  sold  "  for  account  of  whom  it  may  concern," 
that  is  to  say,  for  account  of  the  bill  holder  first,  and  of  the  owner 
of  the  property  afterwards.  A  very  large  part  of  the  grain,  produce, 
cotton  and  tobacco  business  of  this  country  is  transacted  by  means 
of  documentary  bills.  They  have  often  little  else  than  the  value  of 
the  property  to  depend  upon,  the  drawers  and  acceptors  being  only 
middlemen,  or  factors  of  small  responsibility.  If  the  property  is  of 
a  staple  character,  always  salable  at  a  price,  and  the  advances  are 
sufficiently  below  its  value,  such  bills  make  very  desirable  paper,  for 
the  reasons  already  given  that  they  do  .not  depend  on  the  solvency 
or  even  the  good  faith  of  the  parties,  the  property  itself,  authenti- 
cated by  its  title  deeds,  being  the  real  security.  Foreign  bankers 
make  their  profit  very  largely  in  buying  documentary  bills  at  one 
rate  and  selling  their  own  plain  bills  at  a  higher  rate;  but  it  re- 
quires large  capital  and  established  credit  to  make  a  market  for 
bankers'  bills.  In  recent  years  the  margin  of  profit  has  been  very 
small,  and  the  liability  incurred  in  making  it  is  immense,  as  both 
the  bills  purchased  and  those  sold  have  to  bear  the  banker's  signa- 
ture. Foreign  bills  are  not  usually  dealt  in  by  American  bankers, 
except  in  the  Southern  cities,  where  cotton  and  tobacco  are  often 
consigned  directly  to  a  foreign  market.  The  same  is  probably  true 
to  some  extent  in  the  grain-handling  cities  of  the  West  and  in 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  55 

California.  It  hardly  pays  to  discount  foreign  bills  and  send  them 
abroad  for  collection  and  remittances  of  proceeds.  To  deal  profit- 
ably in  them,  a  bank  must  draw  exchange,  as  well  as  buy  it,  and 
the  business  of  drawing  is  almost  exclusively  in  the  hands  of  private 
bankers,  and  of  the  representatives  of  European  or  Canadian  banks. 
It  has  always  been  a  surprise  to  many  that  some  of  the  larger  New 
York  banks  have  never  competed  for  this  business.  They  possess 
in  a  high  degree  the  most  important  qualifications  necessary  to  a 
good  drawer  of  exchange.  They  have  an  adequate  known  capital, 
make  and  publish  periodical  reports,  arc  examined  by  official  ex- 
perts, and  are  conservatively  managed  by  officers  and  directors  con- 
spicuous for  their  wealth,  experience  and  probity.  Some  of  them 
have  existed  for  a  long  time,  and  have  acquired  that  wide-spread 
reputation  which  is  a  first  requisite  in  a  drawer  of  foreign  bills. 
Such  a  participation  in  foreign  business  on  the  part  of  the  incor- 
porated banks  would  have  this  further  advantage,  that  the  banking 
of  this  country  would  be  thus  allied  more  closely  with  the  banking 
and  financial  operations  of  the  rest  of  the  world.  At  present  there 
is  too  great  ignorance  of,  and  too  little  regard  paid  to,  what  is 
going  on  in  the  monetary  world  abroad.  It  is  not  considered  a 
necessary  part  of  an  American  banker's  education  to  study  foreign 
banking  and  finance,  and,  as  a  consequence,  all  the  profit  which 
the  banking  business  should  properly  derive  from  foreign  commerce, 
is  turned  over  to  private  individuals,  largely  foreigners,  or  to  the 
representatives  of  more  sagacious  and  cosmopolitan  foreign  institu- 
tions. One  obstacle  to  engaging  in  foreign  banking,  by  the  incor- 
porated banks,  is  the  great  subdivision  of  capital,  and  the  smallness 
of  the  amount  controlled  by  any  one  institution. 

Besides  loans  on  specific  property  consigned  for  sale,  banks  often 
lend  on  property  withheld  from  market  for  a  better  price.  Such 
withholding  is,  of  course,  speculative,  and  the  loans  are  more  or  less 
tainted  with  that  quality.  They  are  not  always  to  be  condemned, 
but  they  should  be  made  with  great  caution,  and  not  relied  upon  to 
meet  the  bank's  immediate  liabilities.  Enough  available  means  should 
always  be  held  in  cash,  and  in"  perfectly  reliable  short  paper,  certain 
to  be  paid  at  maturity,  to  cover  circulation  and  deposits.  Capital 
and  surplus,  when  not  absorbed  in  Government  bonds  (as  is  largely 
the  case  v/ith  that  of  the  National  banks ),  may  be  lent  on  longer 
and  less  convertible  security.  Convertibility,  however,  is  the  first 
requisite  in  the  collaterals  to  a  loan. 

The  moment  such  collaterals  are  inadequate  to  protect  the  loan 
by  a  forced  sale,  the  debt  becomes  unsafe.  The  objection  to  loans 
on  property  not  sold,  or  consigned  for  sale,  is  that  they  have  no  na- 
tural maturity,  and  however  ample  the  collaterals,  they  are  essentially 
accommodation  loans,  and  have  often  to  be  inconveniently  prolonged. 
The  test  of  soundness  in  a  bank  is  the  speed  with  which  it  could 
liquidate,  and  return  its  capital  to  stockholders. 


56  PRACTICAL    BANKING. 

If  loans  and  discounts  could  be  kept  within  the  limits  which 
have  been  described,  banking  would  be  a  very  safe  and  easy 
business ;  but  it  is  nearly  impossible  to  avoid  a  class  of  transactions 
of  a  far  more  questionable  character ;  and  when  banks  fail,  or  lose 
heavily,  it  is  almost  always  because  questionable  loans  have  become 
the  rule,  instead  of  the  exception,  in  their  business.  The  quality 
of  convertibility  has  been  gradually  lost  sight  of  (usually  in  the 
greedy  pursuit  of  high  rates  of  interest),  and,  little  by  little,  the 
assets  have  become  tied  up  in  a  harder  and  harder  knot.  Common- 
est among  objectionable  loans  are  those  on  personal  security,  and 
accommodation  paper  without  collaterals ;  such  as  is  not  the  out- 
growth of  any  business  transaction,  out  of  the  completion  and  frui- 
tion of  which,  the  means  of  payment  will  be  derived.  Loans  made 
for  the  purchase  or  improvement  of  real  estate,  whether  productive 
or  speculative;  loans  to  provide  quick  capital  for  corporations,  or 
for  individual  business,  are  not  only  very  objectionable,  but  unfor- 
tunately also  very  common.  However  strongly  fortified  by  names, 
they  are  always  reluctantly  paid,  and  often  the  cause  of  anxiety 
and  trouble.  It  is  entirely  outside  of  the  province  of  legitimate 
banking  to  furnish  money  for  such  purposes.  Investments  should 
be  the  result  of  savings,  and  it  is  very  unwise,  either  for  an  indi- 
vidual to  anticipate  his  savings  by  loans  at  short  maturity,  or  for  a 
bank  to  help  him  to  do  so.  So  of  quick  capital ;  I  have  shown 
that  all  business  requires  it,  and  it  should  be  greater  or  less  ac- 
cording to  the  business.  It  is  the  margin  which  protects  from  dis- 
aster, and  guarantees  success.  It  is  no  part  of  a  bank's  business 
to  lend  that  margin.  By  so  doing,  it  takes  on  itself  the  risk 
which  belongs  to  the  customer,  and  which  is  the  strongest  incen- 
tive to  prudence.  Its  duty  to  him,  and  its  proper  relation  to  his 
business,  begin  and  end  with  turning  his  products  into  cash,  as 
soon  as  they  are  sold — converting  his  credit  sales  into  cash  sales, 
and  thus  reducing  the  necessary  amount  of  his  floating  capital  or 
margin,  without  assuming  to  provide  that  margin. 

A  class  of  loans  which  has  done  more  than  any  other  to  bring  our 
banking  institutions  to  grief,  within  the  last  twenty  years,  is  that 
on  railroad  bonds.  It  is  very  pertinent,  in  spite  of  all  that  has  been 
said  and  written  about  it,  and  while  the  experience  is  fresh  and  pain- 
ful, to  point  out  the  reason  why  such  loans  were  disastrous,  and  to 
indicate  the  inherent  quality  which  made  them  so.  This  leads  us  to 
say  a  few  words  about  commercial,  or  rather  financial,  crises,  and  the 
steps  which  lead  to  them.  The  soundest  maxims  and  practices  prevail 
in  the  business  world  after  a  crisis  and  liquidation.  Convalescence 
and  repentance  go  hand  in  hand,  the  world  over.  When  business  is 
fairly  resumed,  in  the  good  time  now  coming,  we  shall  see  every 
class  of  business  men  proceeding  with  the  greatest  caution.  Miners 
and  manufacturers  will  be  careful  not  to  overstock  the  market ;  mer- 


DIRECTORS'   MEETINGS   AND    DISCOUNTING.  57 

chants  will  sell  on  short  credit,  and  scrutinize  the  means  and  char- 
acter of  their  customers ;  banks  will  keep  their  money  in  the  till, 
rather  than  make  doubtful  loans ;  investors  will  be  content  with  a 
low  rate  of  interest,  so  long  as  the  security  is  undoubted  ;  specu- 
lation and  the  speculator  will  be  read  out  of  all  decent  society, 
and  the  men  who  get  up  pools  and  corners  will  be  avoided  by  all 
who  need  credit  and  are  careful  of  their  reputation.  Contentment> 
economy,  and  good  morals  will  prevail,  and  for  a  time  we  shall 
constitute  a  model  society.  But  by  and  by  we  shall  tire  of  too 
much  *  virtue ;  the  wheels  of  industry  and  exchange  will  move 
more  rapidly,  competition  will  be  sharper,  accumulating  profits  will 
encourage  more  luxurious  living,  luxury  will  multiply  wants  faster 
than  the  increase  of  means,  higher  profits  will  be  demanded  and 
greater  risks  will  be  assumed  to  realize  them ;  speculation,  which 
is  oftener  the  offspring  of  artificial  wants  than  of  the  love  of 
gambling  for  its  own  sake,  will  take  the  place  of  slow  and  plodding 
industry.  This  will  be  the  progress  of  things  in  one  direction.  A 
progress  more  potential  and  not  less  dangerous  will,  at  the  same 
time,  go  on  in  another.  Capital  accumulates  more  rapidly  in  pros- 
perous seasons,  than  the  chances  which  offer  for  its  employment. 
Surpluses  accumulate,  and  with  them  the  channels  of  investment 
widen.  The  first  use  of  a  surplus  is  to  increase  reproductive  capi- 
tal ;  but  there  is  a  limit  to  the  use  of  such  capital.  To  augment 
it  too  rapidly  would  lead  to  over-production  and  over-trading,  and 
these  will  inevitably  occur  before  capital  consents  to  seek  remoter 
and  slower  resting  places.  But  seek  them  ultimately  it  must  and 
ought,  for  otherwise  civilization  would  cling  to  its  old  centers,  and 
the  extremities  would  never  be  opened  up  or  enriched.  This  process 
involves  the  conversion  of  floating  into  fixed  capital,  or  to  use  the 
more  expressive  European  phrase,  the  immobilization  of  capital. 
Capital  arising  from  the  profits  of  business,  and  invested  in  lands, 
buildings,  factories,  railways,  mines  and  furnaces,  is  thus  immobil- 
ized. The  degree  of  immobilization  is  greater  or  less,  according  as 
the  resulting  revenue  from  the  investment  is  more  or  less  remote- 
If  a  quick  return  is  yielded,  and  that  return  does  not  involve 
over-production,  the  proceeding  is  wise  and  healthy.  If,  on  the 
other  hand,  the  return  is  uncertain,  or  very  remote,  there  is  great 
danger  that  capital,  instead  of  being  immobilized  merely,  may  be 
absolutely  lost.  It  is  rarely  possible  to  compute  with  accuracy  the 
cost  of  a  great  undertaking,  or  foretell  the  period  of  its  fruition. 
The  disposition  to  spread  present  means  over  a  great  deal  more 
ground  than  it  can  fairly  fructify,  is  as  universal  as  the  disposition 
among  farmers  to  cultivate  too  much  land. 

Now,  let  us  apply  these  principles  to  our  past  railway  construc- 
tions. The  two  dangerous  elements  to  which  we  have  adverted,  spec- 
ulation seeking  illegitimate  profits,  and  surplus  capital  driven  to  seek 


58  PRACTICAL    BANKING. 

remote  investments,  cooperated  to  make  it  what  it  was.  Men  with- 
out capital  did  most  of  the  speculating,  men  with  more  capital 
than  they  knew  how  to  employ  profitably  furnished  the  means. 
But  the  means  available  proved  to  be  sadly  inadequate  to  the  un- 
dertaken schemes.  It  became  soon  apparent,  in  almost  all  cases, 
that  to  save  the  surplus  first  invested,  the  capital,  vital  to  business, 
must  be  encroached  on.  Thus,  little  by  little,  the  working  capital  of 
the  country — not  its  savings,  but  its  life — was  drawn  into  the  fatal 
vortex.  This  working  capital  is  like  the  grease  which  greases  the 
wheels  of  the  farmer's  wagon.  If  not  seasonably  supplied,  the 
heated  axle  utters  its  notes  of  alarm,  and  if  this  goes  unheeded, 
the  wheel  is  set  fast  and  the  vehicle  is  stopped.  The  wholesale 
construction  of  railways  on  credit  was  a  business  of  which  the 
country  had  no  experience,  and  this  is  the  only  excuse  for  the 
gross  violation  of  sound  business  principles  which  it  involved.  The 
banks  were  no  wiser  than  the  people.  They  began  to  lend  moder- 
ately, on  the  security  of  railway  bonds,  before  railways  had  been  dis- 
credited, and  when  they  had  a  surplus  of  capital  to  lend ;  and 
they  ended  by  lending  immoderately  on  the  same  security,  after  its 
treacherous  character  had  been  disclosed,  in  the  vain  struggle  to 
save  their  past  loans,  or  to  assist  customers  whom  they  were  un- 
willing to  see  go  to  the  wall.  Very  largely,  also,  in  1871-2,  and  '73, 
they  lent  to  railways,  on  railway  securities,  for  the  sake  of  illegiti- 
mate interest,  by  which  we  mean  not  such  rates  as  merely  violate 
the  usury  laws,  but  such  as  no  healthy  business  ever  did  or  ever 
can  pay.  They  were  lending  to  a  spendthrift  heir  on  the  doubtful 
security  of  a  post-obit  bond.  There  is  no  danger  that  this  folly 
will  be  repeated  in  our  time,  but  there  are  always  snares  set  for  the 
unwary,  and  the  next  decade  will  doubtless  disclose  its  own  pecu- 
liar temptations,  and  a  period  of  prosperity  will  hardly  escape  the 
usual  dismal  ending. 

The  regular  meetings  of  Boards  of  Directors  in  most  banks  are 
held  twice  a  week,  but  in  some  banks  meetings  are  held  daily. 
The  mode  of  discounting  paper  varies  much  in  different  banking 
institutions.  In  many  of  them,  especially  in  the  larger  cities,  the 
business  head,  whether  he  be  the  president,  vice-president  or  cashier 
passes  on  the  paper  as  soon  as  it  is  offered  for  discount.  Cus- 
tomers cannot  wait,  money  is  wanted,  and  they  are  speedily  told 
whether  they  can  be  accommodated  or  not.  But  with  the  country 
banks  a  different  custom  prevails.  The  paper  is  offered  for  discount 
and  is  put  before  the  directors,  and  they  decide  whether  to  accept 
or  to  decline  it.  The  president  of  a  very  profitable  bank  in  New 
York  City  once  said  to  the  writer,  that  after  his  bank  had  been  in 
existence  for  ten  years  it  had  lost  only  three  pieces  of  paper,  and 
these  were  discounted  by  the  board  during  his  absence.  He  loaned 
the  money,  and  the  directors  at  their  meetings  merely  ratified  the 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  59. 

loans  made.  A  board  is  a  very  convenient  body  for  referring 
paper  which  an  officer  is  unwilling  to  accept.  He  does  not  wish 
to  offend  the  offerer  by  declining  to  discount  it,  and  so  it  is  re- 
ferred to  the  board  for  their  action.  This  is  the  least  offensive 
way  of  telling  a  man  that  he  cannot  be  accommodated.  Of  course, 
many  cases  are  referred  to  the  board  for  their  action  which  may  be 
decided  favorably.  The  amounts  may  be  very  large,  or  there  may  be 
something  peculiar  about  the  loans,  a  longer  time  than  is  usually 
granted  perhaps  may  be  wanted,  and  the  cashier  or  president  may 
not  wish  to  assume  the  sole  responsibility.  When  banks  hold  daily 
meetings  the  directors  decide  what  paper  shall  be  discounted. 

In  order  to  have  a  correct  knowledge  of  dealers'  accounts,  the 
cashier  has  on  his  desk  a  book  which  contains  a  record  of  the 
average  daily  balance  of  every  dealer.  This  is  made  up  at  the  end 
of  each  month,  and  the  average  for  the  month  is  entered  in  the 
Average  Book.  At  the  end  of  the  year  the  average  for  the  twelve 
months  is  struck,  and  usually  the  Average  Book  is  so  ruled  as  to 
show  the  daily  average  for  five  to  ten  years  previously.  The  Aver- 
age Book  is  indexed  throughout  on  the  margin,  with  as  many 
leaves  as  are  required  for  each  letter.  The  names  of  National 
banks  are  usually  entered  first,  alphabetically,  then  State  banks,, 
then  bankers,  and  then  the  individual  depositors  from  A  to  Z, 
Usually  there  is  a  new  Average  Book  for  each  year. 

The  amount  of  discounts  usually  granted  to  a  dealer  (the  bank's 
safety,  of  course,  first  being  assured)  is  proportionate  with  his  aver- 
age balances.  For  example,  a  dealer  whose  general  average  balance 
is  $  1 5,000  would  be  entitled  to  accommodation,  other  things  being 
the  same,  to  five  times  as  large  a  line  as  a  dealer  with  an  average 
balance  of  $3,000.  Hence  a  correctly  kept  Average  Book  is  an  im- 
portant guide  in  granting  discounts. 

Good  banking  requires  a  bank  to  be  in  a  condition  to  meet  every 
dealer's  reasonable  needs  in  proportion  to  his  balances,  irrespective 
of  the  current  condition  of  the  money  market. 

At  Directors'  meetings  the  president  is  seated  at  the  head  of  the 
table,  and  the  cashier  occupies  a  convenient  seat  near  him.  In 
some  banks  the  directors  have  particular  chairs,  in  others  no  order 
of  arrangement  is  observed.  The  cashier  reads  the  minutes  of  the 
previous  meeting  of  the  board,  and  after  their  approval  the 
board  proceeds  to  other  business.  The  cashier  records  the  names 
of  the  directors  present,  as  this  fact  is  worth  preserving.  The 
business  transacted  since  the  last  meeting,  as  previously  stated,  con- 
sisting of  the  discounting  of  paper  on  the  responsibility  of  the 
bank  manager,  is  submitted  for  ratification.  Banking  institutions  are 
not  always  so  particular  as  they  ought  to  be  in  doing  this,  or  in 
examining  the  paper  taken. 

When  the  wrong  practices   of  Eno,  the    president   of  the    Second 


6o 


PRACTICAL    BANKING. 


National  Bank  of  New  York,  were  discovered,  it  was  found  that 
not  only  did  he  discount  paper  on  his  sole  responsibility,  but  kept 
it  in  a  vault  down  town,  not  belonging  to  the  bank,  and  the 
directors  never  saw  it.  They  accepted  his  statement  of  what  he 
did  as  true,  and  never  troubled  themselves  to  look  at  the  paper 
discounted.  Had  this  been  done,  Eno  would  have  been  obliged 
to  resort  to  some  other  artifice  to  conceal  his  fraud;  or,  what  is 
quite  probable,  could  not  have  gone  so  far  as  he  did,  without  ex- 
citing suspicion  leading  to  his  detection. 

Vigilance   is   the   price   of  prosperity,   and   this   applies    more   em- 
phatically   to    banking    than     to    almost    any  other    kind    of    busi- 


Daily  Statement, 


.188 


Monday. 

Tuesday. 

Wed. 

II           II 

N  Y  Clearing-house  Association  bonds    

Sundry  securities                        

Total  loans  

Specie     Gold  certificates                              .           .... 

Total  cash                .  .. 

._ 

Taxes  paid  

Exchange  

Total  expenses,  &c  

Real  estate,  banking  house         ....         

Other  Real  Estate  

Deposit  with  (J.  S.  Treasurer,  5  per  cent  fund.         . 

Due  from  U.  S.  Treasurer,  Redemption  Agent 

Due  from  banks  . 

Total  footings  

Memoranda  —  Legal-tender  notes  . 

Specie  *  

5  per  cent,  fund  and  redemptions  

Total  reserve  

Reserve  required  

DIRECTORS'  MEETINGS  AND  DISCOUNTING. 


01 


ness.  No  bank  manager,  however  long  and  ably  he  may  have 
served  a  bank,  ought  to  be  permitted  to  conduct  its  affairs  without 
supervision.  Directors  who  do  not  direct  occupy  a  false  position 
toward  the  public,  the  depositors,  the  stockholders  and  the  bank 
manager.  The  welfare  of  the  several  classes  concerned  in  the  in- 
stitution demand  that  these  officials  should  not  neglect  their  duties. 
Before  proceeding  to  discount  paper,  it  is  necessary  to  know  what 
resources  a  bank  has  available  for  that  purpose.  This  information 
is  contained  in  a  Statement  from  the  General  Ledger.  The  follow- 
ing form  is  copied  from  the  Daily  Statement  Book  of  a  bank  in 
New  York  City : 

Arctic  National  Bank  of  the  City  of  New  York. 


Capital  stock 

Surplus  fund 

Profit  and  loss 

Discount 

Interest 

Exchange  

Rents  collected 

Total  profits 

National  circulation  outstanding 

Dividends  unpaid 

Individual  deposits   A  to  — 

u  *          —  to  — 

*  *          —  to  Z 

Certified  checks 

Total  individual  deposits 

Banks  and  bankers'  deposits    A  to  —  . . , 

•  •  *       —  to  —   . . 

•  u  u  —  tO  Z 

Afternoon  mail 

Total  banks  and  bankers'  deposits 

Total  footings 

Memoranda — Gross  deposits 

( Daily )        Net  deposits 

Weekly  average — Loans  and  discounts. . . . 

Specie 

(Reported  Saturdays    Legal-tender  notes. 

to  Deposits 

Clearing- House.}        Circulation 


Monday. 


Tuesday, 


Wed. 


'62  PRACTICAL    BANKING. 

The  items  are  read,  or  the  principal  ones,  and  afterward  the  offer- 
ings, consisting  of  notes  on  which  the  owners  are  desirous  of  obtaining 
money  of  the  bank.  Instead,  however,  of  reading  these,  a  record, 
previously  made  in  a  book  called  an  Offering  Book,  is  read  to  the 
directors.  In  this  book  the  names  of  the  offerers  are  recorded 
alphabetically,  the  amount  of  each  note,  the  time  it  is  to  run,  the 
name  of  the  indorser,  where  payable,  and  any  other  particulars  re- 
lating to  it.  In  small  banks  the  notes  offered  are  read  without  re- 
gard to  alphabetical  order. 

If  the  amount  of  offerings  exceeds  the  amount  of  loanable  funds 
of  course  not  all  can  be  accommodated,  even  if  their  notes  be  de- 
sirable. But  rarely  does  it  happen  when  any  considerable  amount  of 
paper  is  offered  that  it  possesses  a  uniform  value.  Some  makers 
or  indorsers  are  better  known,  and  are  preferred  to  others.  What, 
therefore,  happens,  is  to  select  from  the  entire  amount  offered  the 
most  desirable  offerings,  and  to  decline  the  remainder.  Yet,  often 
the  entire  amount  offered  is  not  enough  to  absorb  all  the  loan- 
able funds.  Then  the  bank  must  look  elsewhere  to  find  a  way  for 
employing  its  resources.  One  way  is  to  buy  paper,  though  in  buy- 
ing it  the  board  may  pass  on  the  transaction  the  same  as  would 
be  done  if  offered  in  the  usual  way  for  discount.  This  business 
of  buying  paper  is  worth  a  brief  explanation. 

It  is  purchased  by  a  bank  of  a  note-broker.  But  where  does  he 
get  such  paper  to  sell?  Of  merchants.  Formerly  they  gave  notes 
only  for  the  merchandise  they  bought,  but  in  recent  times  they 
give  notes  without  reference  to  the  purchase  of  any  special  mer- 
chandise, in  order  with  the  money  thus  obtained  to  discount  their 
ibills. 

Once  when  notes  were  for  a  longer  period,  and  notes  were  al- 
most universally  given  for  purchases,  they  were  generally  drawn  to 
the  maker's  order,  and  read  for  value  received  "from  A  B  &  Co.," 
or  whoever  the  seller  might  be.  Indeed,  %ome  houses  were  so  care- 
ful lest  the  paper  might  be  thought  to  be  made  paper  that  they 
inserted  the  name  of  the  seller  of  the  merchandise  in  full.  This 
paper  was  sold  largely  in  the  "  street "  to  banks  and  others,  who 
bought  it  with  confidence  because  it  represented  an  actual  business 
transaction.  It  suited  commission  houses  and  importers,  because  if 
not  willing  to  hold  the  paper  until  maturity,  they  could  realize  upon 
it  without  the  responsibility  of  endorsing  it,  and  thus  go  on  and 
sell  to  a  house  (whatever  their  own  private  opinion  of  its  soundness 
might  be)  so  long  as  the  paper  would  sell  at  a  rate  of  discount  not 
interfering  too  much  with  the  profit  on  the  goods  or  the  rate  of 
commission.  This,  of  course,  was  legitimate  dealing,  representing 
actual  merchandise  transactions.  So,  indeed,  is  the  making  and 
openly  selling  of  one's  paper  in  the  market,  and  the  using  of  the 
proceeds  in  "  cashing"  bills,  legitimate,  but  it  is  dangerous  and  liable 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  63 

to  abuses.  Funds  so  obtained  can  be  used  for  any  purpose,  and  the 
developments  in  some  recent  failures  have  shown  that  the  money 
was  often  used  for  operations  entirely  outside  of  the  regular  busi- 
ness of  the  maker,  or  for  purely  speculative  purposes. 

As  merchants  often  sell  their  paper  at  six  or  seven  per  cent, 
interest,  and  discount  their  own  bills  at  seven  to  nine  per  cent., 
of  course  they  make  two  or  three  per  cent,  by  borrowing  the 
money  for  thus  paying  their  bills  in  advance  of  their  maturity. 
The  broker  gets  a  commission  for  negotiating  the  merchants'  paper, 
which  must  be  deducted  from  the  profit  of  the  transaction.  After 
deducting  this  brokerage,  however,  there  is  a  considerable  profit 
from  borrowing  money  as  just  described,  and  the  business  has  be- 
come a  very  large  one. 

In  some  parts  of  the  country,  Hartford,  Connecticut,  for  example, 
the  banking  capital  is  much  larger  than  can  be  profitably  employed 
locally.  Providence  is  another  place  of  the  kind.  The  banks  of  those 
cities  consequently  invest  large  sums  through  note-brokers. 

The  following  is  the  method  of  conducting  the  business  in 
the  largest  cities.  A  printed  or  lithographed  list  of  notes  is  sent 
to  a  bank.  It  may  contain  a  description  of  a  hundred  pieces  of 
paper  and  is  marked  "  This  is  for  bankers'  use  only."  Each  piece 
is  numbered.  If  a  bank  wishes  to  see  any  of  the  pieces  therein 
described,  they  are  sent  on  application.  There  is  another  way,  how- 
ever, of  negotiating  such  paper,  which  may  be  explained  here.  If  a 
note-broker  were  selling  all  the  paper  given  by  a  certain  merchant, 
the  broker  would  be  very  careful  in  offering  it  for  sale.  If  a  banker 
has  twenty  thousand  dollars  of  it,  for  example,  and  the  broker  knows 
that  he  cannot  increase  the  amount,  he  will  be  careful  not  to  offer 
more.  The  broker  would  be  equally  careful  not  to  put  such  paper  on 
a  printed  list  through  fear  that  the  banker  would  see  it,  and  con- 
cluding that  the  merchant  was  giving  a  large  amount  of  paper,  would 
determine  to  buy  no  more.  The  banker,  in  other  words,  might 
conclude  that  the  merchant  was  issuing  more  paper  than  he  ought 
to  issue  if  his  name  appeared  very  frequently  on  printed  lists. 

Sometimes  the  broker  has  the  notes  in  his  possession  for  sale;  in 
other  cases  he  has  simply  a  memorandum  of  them.  In  the  latter 
case  he  has  a  printed  form,  containing  the  name  of  the  maker, 
amount,  when  and  where  payable,  indorser,  and  other  particulars.  A 
list  is  sent  to  a  bank  containing  such  a  description  of  notes,  or 
a  broker,  or  agent  for  him,  may  visit  a  bank  personally  and  exhibit 
such  a  list,  or  the  paper  itself,  which  he  wishes  to  negotiate.  Many 
banks  are  visited  several  times  a  day  by  these  brokers  offering  the 
notes  of  persons  for  sale. 

It  may  be  further  added  that  brokers  do  not  always  get  posses- 
sion of  the  notes  until  they  have  paid  for  them.  Several  practices 
exist  in  this  regard.  One  practice  is  for  a  merchant  to  make  notes 


64  PRACTICAL    BANKING. 

and  then  deliver  them  to  a  note-broker  for  sale.  The  latter  may 
give  a  receipt  or  acknowledgment,  or  he  may  not.  In  such  a  case 
the  merchant  has  entire  confidence  in  the  broker,  otherwise  he 
would  not  give  him  notes  without  adequate  security.  There  are 
some  very  good  reasons  for  thus  leaving  notes  with  a  broker  when 
perfect  confidence  is  reposed  in  him.  Very  likely  he  has  a  class 
of  customers,  retired  merchants,  perhaps,  who  buy  paper  occasion- 
ally. They  frequent  his  office,  and,  if  he  has  notes  which  they  can 
examine,  may  be  led  to  purchase,  whereas  they  would  not  do  so  if 
the  broker  had  only  a  memorandum  of  the  paper,  and  was  obliged 
to  send  for  it  before  he  could  sell  it  and  get  the  money  therefor. 
For  this  reason,  therefore,  sales  are  facilitated  by  entrusting  the 
broker — and,  in  truth,  vast  amounts  are  left  for  sale.  When  Alonzo 
Follet,  of  New  York,  failed  a  few  years  since,  he  had  in  his  office 
nearly  $  10,000,000  of  notes,  and  the  amount  of  paper  that  he  had 
sold  annually  was  about  $  100,000,000. 

Another  way  is  for  merchants  to  leave  their  paper  with  a  note- 
broker  and  get  immediately  from  him  a  certain  amount  thereon.  A 
merchant,  for  example,  may  leave  $  25,000  of  paper  and  ask  for 
$  10,000,  expecting  the  balance  when  the  paper  is  sold.  The  note- 
broker  pays  him  this  advance  on  account,  and  after  selling  the 
paper  and  deducting  his  commission  sends  the  balance. 

Another  way  is  for  the  note-broker  to  buy  the  paper,  paying 
therefor  at  the  time  of  the  purchase.  A  note-broker  will  go  to  a 
merchant  and  say,  "  I  will  take  so  much  of  your  paper  at  such  a 
rate."  If  the  rate  be  acceptable,  the  merchant  will  sell  it  to  him 
and  get  his  money.  In  these  cases  the  broker  expects  to  sell  the 
paper  at  a  lower  rate,  and  to  make  more  than  he  would  if  charging 
the  ordinary  commission.  Many  brokers  do  wholly  a  business  of  this 
kind — buying  paper  and  selling  it  at  the  best  rate  they  can  obtain 
for  it. 

The  broker's  commission  in  the  large  cities  is  one-eighth  of  one 
per  cent.;  but  for  negotiating  leather  paper,  as  it  is  called,  one- 
quarter  of  one  per  cent,  is  paid,  and  the  same  rate  is  paid  on  dry 
goods  and  on  tea  paper.  The  rate  first  named,  however,  is  the  most 
general  one  for  negotiating  notes. 

In  negotiating  paper  note-brokers  sometimes  endorse  it.  Follet, 
whom  we  have  previously  mentioned,  guaranteed  all  the  paper 
he  sold,  and  thus  became  contingently  liable  for  a  very  large 
amount.  It  was  said  at  the  time  of  his  failure  that  the  banks 
which  bought  it  did  not  do  so  on  his  guarantee,  but  on  the  credit 
of  the  makers  of  the  notes.  A  bank  president  at  that  time  re- 
marked, "  If  a  man  were  to  guarantee  the  note  of  the  richest  man 
in  New  York,  he  would  be  contingently  liable  for  its  payment,  but 
the  note  would  be  valuable  because  the  maker  was  responsible. 
Follet's  transactions  were  very  large,  and  he  handled  the  paper  of 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  65 

some  of  the  best  firms  in  the  city.  I  presume  the  banks  of  the 
city  are  now  buying  a  million  dollars  of  paper  a  day  from  brokers, 
all  bought  because  the  maker  is  supposed  to  be  good,  and  not  be- 
cause the  broker  endorses  it." 

It  may  be  added  that  banks  do  not  buy  paper  of  the  brokers  in 
preference  to  discounting  that  of  their  depositors;  but  as  we  have 
previously  said,  these  institutions  are  often  unable  to  loan  all  their 
resources  to  persons  who  make  a  direct  application  for  money. 
Banks  must  therefore  either  resort  to  the  note-brokers,  or  loan  in 
some  other  way. 

This  bought  paper,  as  it  is  termed,  is  entered  in  a  discount 
book,  separate  from  the  DEALERS'  DISCOUNT  BOOK,  and  for  distinction 
the  bought-paper  book  is  called  CASHIER'S  DISCOUNTS.  Cashier's 
Checks  are  given  for  the  paper  purchased,  and  each  day  the  total 
payments  of  the  CASHIER'S  DISCOUNTS  are  credited  to  the  "  Cashier 
account "  in  the  ledger.  Each  check  when  presented  and  paid  is 
charged  to  cashier's  account,  which  offsets  the  corresponding  credit. 
Paper  discounted  for  dealers  is  posted  in  a  DEALERS'  BILL  BOOK, 
with  a  title  page  for  each  dealer.  Paper  purchased  is  posted  in  a 
CASHIER'S  LEDGER,  with  a  title  page  for  each  name  on  the  strength  of 
which  the  paper  is  bought,  and  both  books,  of  course,  are  indexed. 
A  reference  to  any  name  can  therefore  readily  be  had,  and  the 
amount  on  hand,  if  any,  at  once  be  ascertained. 

The  officers,  therefore,  may  tell  at  a  glance  what,  and  how  much 
of  any  name  bought,  they  may  have  on  hand.  Many  banks  have 
lying  on  their  president's  desk  a  small  book,  the  leaves  of  which 
are  made  of  silicate  slate,  with  two  or  three  leaves  for  each  letter 
of  the  alphabet.  The  names  of  paper  purchased,  with  the  due 
dates  and  amounts,  are  written  in  pencil  on  the  appropriate  pages, 
and  the  entries  are  corrected  daily  by  erasures  or  additions,  as  the 
case  may  be. 

Some  banks  have  adopted  a  very  perfect  system  of  recording 
the  information  they  obtain  concerning  the  paper  they  buy.  Books 
are  prepared  with  a  page  or  more  devoted  to  each  name.  Here 
are  recorded,  briefly  and  succinctly,  condensed  extracts  of  mercan- 
tile agency  reports,  extracts  from  letters  that  may  be  received  re- 
lating to  the  character  and  responsibility  of  the  house  in  question, 
synopses  of  conversations  with  merchants,  bankers,  and  others  who 
have  been  found  to  know  the  firm,  &c.,  &c.  A  voweled  index 
affords  means  of  speediest  reference  to  any  desired  name. 

Although  the  buying  of  paper  has  long  been  practiced  by  the 
banks,  the  Supreme  Court  of  Minnesota,  in  1872,  declared  that  a 
bank  which  was  authorized  by  statute  "to  carry  on  the  business  of 
banking  by  discounting  notes,  bills  and  other  evidences  of  debt,"  had 
no  authority  to  buy  paper.*  The  custom  of  buying  paper  has  not 

*  Farmers  and  Mechanics'  Bank  v.  Baldwin,  Banker's  Magazine,  vol.  31,  p.  630,  and  see 
the  same  volume,  p.  510,  for  a  discussion  of  the  subject. 


66  PRACTICAL    BANKING. 

been  shaken  in  the  least  by  this  decision.  It  has  been  practiced 
too  long  and  extensively  to  be  overthrown  by  anything  except  a 
legislative  enactment. 

A  common  way  of  lending  is  on  collateral  security,  that  is,  on 
bonds,  stocks,  warehouse  receipts  and  other  evidences  of  property. 
Within  a  few  years  the  banks  in  the  large  cities  have  increased 
their  loans  of  this  nature  enormously.  They  have  done  so  partly 
because  the  purchase  of  paper  from  note-brokers  has  proved  so  haz 
ardous.  Within  two  years  mercantile  failures  have  occurred,  from 
which  some  banks  lost  heavily  in  consequence  of  having  large 
amounts  of  bought  paper.  One  failure  was  that  of  a  leather  house, 
whose  principal  office  was  in  Boston.  The  banks  did  not  suppose 
before  the  failure  that  the  house  was  floating  such  an  enormous 
amount  of  paper.  By  making  their  notes,  and  giving  them  to  note- 
brokers  to  sell,  it  was  exceedingly  difficult  for  others  to  form  any 
judgment  of  the  amount  made  and  negotiated.  After  that  failure, 
many  banks  concluded  that  if  loans  were  made  on  collateral  security 
their  risk  would  be  diminished.  They  believed  that  they  were  quite 
capable  of  judging  accurately  of  the  value  of  collaterals  offered  as 
security.  Many  of  these  loans  are  made  on  call,  that  is,  the  bank 
can  demand  payment  immediately,  or  after  one  day's  notice.  Loans 
on  railroad  securities  as  collaterals  are  regarded  with  favor  by  some 
of  the  most  conservative  banks. 

The  New  York  Stock  Exchange  will  not  list  any  kind  of  stocks 
or  bonds  unless  the  instruments  or  evidences  of  them  are  engraved 
on  steel  plates.  All  railroad  stocks  are  required  to  be  issued  at  a 
transfer  agency  and  registered  at  some  well-known  bank  or  trust 
company.  This  is  to  prevent  a  fraudulent  over-issue  of  certificates. 
The  principal  New  York  City  banks  have  the  stock  exchange  tele- 
graph quotations  in  their  banking  rooms,  and  therefore  are  promptly 
informed  concerning  the  current  fluctuations  of  the  market.  On 
such  securities,  loans  are  made  usually  within  ten  or  fifteen  per 
cent,  of  the  market  value.  The  fluctuations  in  these  stocks  thus 
pledged  are  carefully  watched  by  a  person  in  the  bank,  especially 
appointed  for  that  purpose.  It  is  his  duty  to  demand  either  more 
security,  or  the  payment  of  a  part  of  a  loan,  in  the  event  of  a 
decline  in  the  value  of  the  security  pledged  therefor. 

In  some  States,  though  the  rule  is  not  uniform,  the  law  requires 
that  for  a  collateral  to  be  good  security  when  delivered  to  the  bank, 
stock  must  be  actually  transferred  on  the  books  of  the  company 
which  first  issued  the  same. 

Another  form  of  loan  is  that  made  on  the  security  of  business 
paper.  Thus,  a  merchant  having  a  number  of  small  notes  of  his 
country  customers,  brings  to  the  bank  $  1 5,000  or  $  20,000  of  such 
paper,  and  asks,  on  the  pledge  of  it,  for  a  loan  of  $10,000,  giving  his 
own  note  at  thirty,  sixty  or  ninety  days.  This  custom  is  more  com- 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  67 

mon  in  Western  cities  than  in  New  York.  It  is  among  the  safest 
of  business  transactions,  if  ordinary  care  and  discrimination  are  ob- 
served, for  if  the  principal  should  fail,  his  estate  will  pay  something, 
and  the  division  of  the  remainder  among  several  parties,  with  a  con- 
siderable surplus  beyond  the  amount,  leaves  the  risk  of  loss  very 
small. 

Such  are  the  several  ways  of  loaning  the  resources  of  a  bank.  It 
may  be  added,  however,  that  fewer  losses  occur  in  loaning  to  regular 
dealers  than  in  buying  paper.  Banks,  of  course,  know  more  about 
their  dealers  than  about  other  persons  not  keeping  accounts  with 
them. 

If  a  single  director  objects  to  a  note  offered  for  discount  or  pur- 
chase, the  board  generally  will  refuse  to  make  the  loan.  If  an  ob- 
jection should  be  based  simply  on  prejudice,  the  board  probably 
would  not  respect  it.  But  if  a  director  should  say,  "  I  have  a  pretty 
good  reason  for  not  buying  that  paper,"  his  opinion  would  be  con- 
clusive. Directors  are  chosen  partly  for  the  information  which  it  is 
supposed  they  will  throw  on  the  condition  of  business,  and  especi- 
ally on  that  in  which  they  are  engaged.  It  is  supposed  that  a  di- 
rector knows  more  about  the  condition  of  persons  engaged  in  the 
same  business  as  himself,  than  the  other  directors,  whose  occupations 
are  different.  This  is  why  their  opinions  have  so  much  weight. 
Nevertheless,  bank  directors  are  not  always  disinterested  in  the  per- 
formance of  their  trust.  Not  long  since  we  heard  the  following 
story.  A  bank  director,  who  was  also  a  member  of  the  Produce 
Exchange  in  a  large  city,  attended  a  meeting  of  the  directors  of 
the  bank.  Several  persons,  who  also  were  members  of  the  Produce 
Exchange,  had  presented  notes  for  discount,  accompanied  with  col- 
lateral securities,  principally  warehouse  receipts  for  grain.  When 
these  offerings  were  read,  one  after  the  other,  the  director  in  ques- 
tion objected,  maintaining  that  they  were  not  as  safe  as  they 
ought  to  be.  When  the  entire  list  of  offerings  had  been  exhausted, 
a  large  balance  remained  unemployed.  The  director  just  men- 
tioned said  if  no  better  use  could  be  made  of  it,  he  would  take 
it  though  at  a  rate  which  was  not  very  remunerative.  His  offer  was 
accepted.  Immediately  he  went  to  the  persons  who  had  applied  for 
loans  to  his  bank  and  loaned  to  them  on  the  securities  which  they 
had  offered.  Of  course  he  was  not  the  typical  bank  director. 
Generally,  directors  are  men  of  well-known  integrity,  and  though 
too  often  neglectful  in  attending  meetings,  they  freely  give  their 
best  experience  to  the  bank  when  they  do  attend. 

Some  directors  attend  meetings  with  regularity,  and  take  a  deep 
interest  in  the  affairs  of  their  bank.  They  seek  to  enlarge  its  sphere 
and  to  increase  its  gains.  There  are  other  directors  whose  presence 
is  a  surprise.  A  third  class  appear  irregularly,  and  sometimes  are 
troublesome  in  their  endeavor  to  learn  concerning  all  the  business 


68  PRACTICAL    BANKING. 

done  at  the  meetings  when  they  were  not  present.  They  are  usu- 
ally retained  in  spite  of  their  ways  for  one  reason  or  another.  If 
they  attended  regularly,  most  of  their  questions  would  be  unneces- 
sary. Time  would  be  saved,  and  the  temper  of  their  associates 
would  not  be  tried.  In  a  large  board  of  twelve  or  fifteen  directors 
it  is  hardl)r  possible  to  have  unanimity  on  all  occasions,  and  yet 
each  director  may  fill  his  valuable  niche  in  the  institution.  Each 
one,  whether  pleasant  or  disagreeable,  whether  regular  in  his  attend- 
ance or  otherwise,  may  through  his  wealth,  or  business  relations,  or 
knowledge,  serve  a  useful  purpose.  At  all  events,  they  are  usu- 
ally selected  with  care,  and  changes  do  not  frequently  occur. 

It  has  been  said  by  a  banker  whose  experience  is  worth  heeding  that 
it  is  one  of  the  duties  of  the  president  to  protect  a  dealer  when  he 
is  unjustly  assailed.  To  do  this  is  also  for  the  advantage  of  the 
bank.  Beside  the  general  results  of  the  fair  treatment  of  credit,  there 
is  this  particular  result,  that  the  best  class  of  customers  which  a 
bank  can  have  consists  of  those  whom  it  has  nurtured  from  mod- 
erate to  larger  success,  and  whose  experience  has  been  all  along 
linked  in  agreeable  intercourse  with  its  officers  and  directors.  These 
are  not  easily  seduced  to  open  accounts  with  other  banks;  but 
they  are  faithful  to  their  old  friends  and  they  introduce  other 
dealers. 

The  New  York  City  banks  do  not  discount  paper  that  runs  for  a 
longer  period  than  four  months.  This  is  the  general  rule.  It  is 
not  always  observed ;  but  a  man's  credit  would  be  unusually  good, 
or  ample  collateral  security  would  be  required,  were  a  loan  granted 
for  a  longer  period.  Some  banks  will  take  only  first-class  double 
name  paper,  that  is,  paper  having  the  name  of  an  endorser  beside 
the  maker,  and  would  prefer  to  buy  such  paper,  at  four  and  a-half 
or  five  per  cent.,  to  buying  other  paper  just  as  good,  perhaps, 
at  six  per  cent,  interest.  In  any  event,  a  risk  is  taken,  and 
with  the  utmost  precaution  in  making  loans  losses  are  not  wholly 
avoided. 

One  of  the  functions  of  a  good  bank  manager  is  to  ascertain,  in 
every  possible  way,  the  financial  condition  of  his  customers.  Every 
well-conducted  bank  has  a  book  in  which  everything  of  importance 
pertaining  to  the  credit,  ability  and  character  of  their  customers  is 
noted.  Papers  are  diligently  read  and  reports  scanned,  inquiries  are 
made  of  persons  who  are  supposed  to  know  about  others ;  all 
kinds  of  business  are  investigated  with  care;  occasionally  a  consid- 
erable sum  is  paid  to  an  individual  for  making  a  special  investiga- 
tion into  the  affairs  of  a  customer.  Very  often  these  investigations 
and  inquiries  must  be  made  with  great  tact  and  secrecy.  If  a  cus- 
tomer were  to  find  out  that  he  were  under  a  telescopic  investiga- 
tion, he  might  be  offended,  withdraw  his  account,  and  vengefully 
exert  himself  to  injure  the  bank.  On  the  other  hand,  no  faithful 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  69 

bank  manager  should  be  negligent  of  his  duties  in  this  regard. 
No  opportunity  for  inquiry  should  be  neglected.  The  most  success- 
ful bank  managers  are  those  who  are  most  diligent  in  conducting 
these  investigations,  and  in  watching  all  these  complicated  movements 
of  trade. 

Every  bank  should  know  as  much  as  possible  concerning  each  of 
its  dealers,  and  the  information  obtained  should  be  carefully  re- 
corded and  preserved.  In  a  large  business  it  would  be  impossible 
for  any  officer  to  remember  the  different  terms  and  agreements  and 
understandings  had  with  its  various  dealers  from  time  to  time,  and 
therefore  it  is  the  practice  of  a  systematic  officer  to  write  or  dic- 
tate to  his  stenographer,  immediately  after  an  important  interview 
with  a  dealer,  the  substance  of  what  has  been  said.  Some  banks 
have  found  that  the  most  advantageous  way  is  to  have  a  very 
large  scrap-book  prepared,  in  which  all  records  of  conversations, 
statements  of  condition,  agency  reports,  etc.,  etc.,  are  pasted. 
The  book  should  be  made  with  numbered  leaves,  and  with  short 
stubs  to  which  papers  can  be  pasted,  and  with  still  shorter  stub 
leaves  to  fill  up  the  book,  so  that  when  it  is  full  the  back  will 
not  be  broken.  A  voweled  index  separately  bound  should  accom- 
pany such  a  scrap-book.  Between  each  numbered  leaf  there  should 
be  room  for,  say,  three  of  the  shorter  stub  leaves  on  which  papers 
could  be  pasted.  These  shorter  leaves  would  be  numbered  i,  2,  3, 
and  the  entry  in  the  index  would  therefore  be,  say,  as  follows :  John 
Smith  &  Co.,  Book  No.  i,  page  (say)  Tfs,  which  would  mean  that 
on  section  2  of  page  185,  in  scrap-book  No.  i,  there  could  be  found 
a  record  of  all  that  was  known  concerning  John  Smith  &  Co.  A 
succeeding  administration  would  therefore  be  able  to  know  just 
about  as  much  concerning  John  Smith  &  Co.  as  the  officer  who 
directed  the  entry.  Of  course,  such  systems  as  the  foregoing  re- 
quire systematic  and  regular  attention,  which  usually  cannot  be 
given  by  either  the  cashier  or  president,  and  therefore  a  clerk  must 

I  be  employed  for  the  purpose.  In  some  large  banks  a  young  man 
is  employed  as  a  "  credit  clerk,"  whose  almost  exclusive  duty  is  to  go 
about  in  the  various  trades  for  the  special  information  required, 
and  record  what  is  learned  in  the  above-described  bought  paper 
books  and  dealers'  scrap  book. 
Most  large  merchants  outside  New  York  City  now  make  their 
notes  payable  there,  and  have  regular  accounts  with  the  banks  in 
that  city.  This  is  one  reason  why  the  banking  resources  of  New 
York  are  so  rapidly  expanding.  Another  is  because  the  city  banks 
have  unusual  facilities  for  lending  money. 

Bank  managers,  as  well  as  bank  directors,  are  often  importuned 
to  make  loans  through  friendship  and  other  than  strictly  business 

k  reasons.  For  many  years  the  title  page  of  the  Banker's  Magazine 
has  borne  the  following  words,  uttered  by  a  successful  and  eminent 


7O  PRACTICAL    BANKING. 

banker  of  Boston,  Nathan  Appleton :  "  No  expectation  of  forbear- 
ance or  indulgence  should  be  encouraged ;  favor  and  benevolence 
are  not  the  attributes  of  good  banking;  strict  justice  and  a  rigid 
performance  of  contracts  are  its  proper  foundations."  Notwithstand- 
ing these  plain  teachings,  many  a  bank  officer,  through  sympathy 
and  regard  for  friends  and  customers,  has  granted  loans  which  were 
not  warranted  either  by  their  condition  or  by  that  of  the  bank  at 
the  time  of  granting  them.  There  are  many  occasions  when  a 
bank  manager  cannot  easily  determine  what  course  is  the  most 
expedient.  A  considerate  regard  for  the  wants  of  a  customer,  his 
ample  security  for  the  loan,  the  condition  of  the  bank  and  of  trade 
— these  are  circumstances  which  not  infrequently  render  a  decision 
difficult.  Of  course  no  extra  lights  can  be  provided  for  these  ex- 
traordinary occasions.  Human  experience  will  not  avail  much  at 
such  times.  If  the  bank  manager  does  not  comprehend  the  situa- 
tion, so  much  the  worse  for  him  and  for  all  concerned ;  any  les- 
son he  might  be  likely  to  learn  would  come  too  late  to  be  of  any 
use  to  him. 

Notwithstanding  the  length  of  this  chapter,  we  cannot  forbear 
adding  the  excellent  "  Suggestions  to  Managers  of  Banks,"  prepared 
by  Mr.  Hugh  McCulloch,  when  Comptroller  of  the  Currency,  on  this 
very  important  subject  of  discounts. 

"  Let  no  loans  be  made  that  are  not  secured  beyond  a  reasonable 
contingency.  Do  nothing  to  foster  and  encourage  speculation. 
Give  facilities  only  to  legitimate  and  prudent  transactions.  Make 
your  discounts  on  as  short  time  as  the  business  of  your  customers 
will  permit,  and  insist  upon  the  payment  of  all  paper  at  maturity, 
no  matter  whether  you  need  the  money  or  not.  Never  renew  a 
note  or  bill  merely  because  you  may  not  know  where  to  place  the 
money  with  equal  advantage  if  the  paper  is  paid.  In  no  other 
way  can  you  properly  control  your  discount  line,  or  make  it  at  all 
times  reliable. 

"  Distribute  your  loans  rather  than  concentrate  them  in  a  few 
hands.  Large  loans  to  a  single  individual  or  firm,  although  some 
times  proper  and  necessary,  are  generally  injudicious  and  frequently 
unsafe.  Large  borrowers  are  apt  to  control  the  bank,  and  when 
this  is  the  relation  between  a  bank  and  its  customers,  it  is  not 
difficult  to  decide  which  in  the  end  will  suffer.  Every  dollar  that 
a  bank  loans  above  its  capital  and  surplus,  it  owes  for,  and  its 
managers  are  therefore  under  the  strongest  obligations  to  its 
creditors,  as  well  as  to  its  stockholders,  to  keep  its  discounts  con- 
stantly under  its  control. 

"Treat  your  customers  liberally,  bearing  in  mind  the  fact  that  a 
bank  prospers  as  its  customers  prosper,  but  never  permit  them  to 
dictate  your  policy. 

"  If  you  doubt  the  propriety  of   discounting  an  offering,  give  the 


DIRECTORS'  MEETINGS  AND  DISCOUNTING.  71 

bank  the  benefit  of  the  doubt  and  decline  it;  never  make  a  dis- 
count if  you  doubt  the  propriety  of  doing  it.  If  you  have  reason 
to  distrust  the  integrity  of  a  customer,  close  his  account.  Never 
deal  with  a  rascal  under  the  impression  that  you  can  prevent  him 
from  cheating  you.  The  risk  in  such  cases  is  greater  than  the  profits. 

"In  business,  know  no  man's  politics.  Manage  your  bank  as  a 
business  institution,  and  let  no  political  partiality  or  prejudice  in- 
fluence your  judgment  or  action  in  the  conduct  of  its  affairs.  The 
National  currency  system  is  intended  for  a  nation,  not  for  a  party; 
as  far  as  in  you  lies,  keep  it  aloof  from  all  partisan  influences." 

In  1876  Mr.  McCulloch  delivered  an  address  before  the  American 
Bankers'  Association,  closing  with  a  statement  of  the  principles  of 
sound  banking,  which  are  a  proper  sequel  to  the  foregoing. 

"First. — The  capital  of  banks  should   be   r^al,   not  fictitious. 

"Second. — The  managers  should  not  be  borrowers,  nor  should 
loans  be  made  to  stockholders  merely  because  they  are  stockholders. 

"  Third. — A  certain  amount  of  the  annual  profits  should  be  car- 
ried to  the  surplus — the  larger  the  surplus  the  better— not  only 
for  the  safety  of  the  stockholders,  liable  as  they  are,  under  the 
bank  act,  for  an  amount  equal  to  their  shares,  but  for  the  pro- 
tection of  depositors. 

"Fourth. — Banks  should  be  kept  strong  in  their  cash  reserves, 
as  times  frequently  occur  when  the  strongest  stand  in  need  of 
them.  Nothing  in  the  long  run  pays  better  than  a  '  goodly  " 
amount  of  idle  money,  especially  when  specie  is  the  only  legal  money. 

"Fifth. — As  banks  are  commercial  institutions,  created  for  com- 
mercial purposes,  preference  in  discounts  should  always  be  given  to 
paper  based  upon  actual  commercial  transactions.  Banks  are  not 
loan  offices.  It  is  no  part  of  their  business  to  furnish  their  cus- 
tomers with  capital,  nor  should  loans  be  made  under  any  circum- 
stances for  operations  in  stocks,  or  to  furnish  facilities  for  stock 
operations. 

"  Sixth. — Renewals  should  only  be  permitted  to  secure  doubtful 
debts,  or  in  cases  in  which  more  time  is  required  than  was  an- 
ticipated when  the  loans  were  made,  to  complete  the  transaction 
upon  which  they  were  based. 

"  Seventh. — Such  salaries  should  be  paid  to  officers  and  clerks  as 
will  relieve  them  from  the  temptation  to  dishonest  practices ;  and 
the  services  of  those  whose  expenditures  exceed  their  salaries 
should  be  promptly  dispensed  with. 

"  Eighth. — Bank  managers  should  bear  in  mind  that  they  are  not 
only  trustees  of  stockholders,  but  that  they  owe  something  to  the 
public — that  their  whole  duty  is  not  performed  when  good  profits 
are  made  and  when  solvency  is  secured,  but  that  they  should  do 
all  in  their  power  to  encourage  morality  in  business  and  to  elevate* 
credit,  especially  commercial  credit,  to  the  highest  standard." 


72  PRACTICAL   BANKING. 


CHAPTER  VIII. 
THE    CASHIER. 


We  have  already  said  that  every  bank  had  a  leading  business  of- 
ficial who  was  either  the  president,  vice-president  or  cashier.  The 
presidents  of  the  country  banks  very  generally  perform  only  a  few 
duties  besides  those  required  by  law  which  cannot  be  delegated. 
Here  and  there  may  be  found  a  president  who  is  the  real  head  of 
the  concern.  In  the  larger  cities  the  president,  in  most  cases,  is  the 
real  manager,  who  is  elected  to  act  in  that  capacity,  and  on  whom 
the  responsibility  and  success  of  the  bank  depend. 

The  cashier,  unless  there  be  a  vice-president,  ranks  next  to  the 
president,  and  has  certain  specified  duties  to  perform.  These  are 
mentioned  in  the  law  under  which  the  bank  exists.  But  from  what 
has  been  already  said,  he  may  also  be  the  real  head  of  the  bank  in 
conducting  its  business,  and  this  is  often  the  case,  especially  in 
country  banks,  which  form  by  far  the  majority  of  the  whole  number. 

His  specific  duties  may  be  thus  defined.  He  keeps  a  record  of 
the  meetings  of  the  directors,  at  which  he  acts  as  secretary.  The 
certificates  of  stock  issued  to  shareholders  are  signed  by  him  as 
well  as  the  president,  and  so  are  the  bank  notes  which  circulate  as 
money.  Checks  also  drawn  on  other  banks  are  signed  by  him,  un- 
less absent,  when  they  are  signed  by  the  president.  Drafts  and 
notes  sent  away  to  other  banks  are  endorsed  by  him.  These  en- 
dorsements are  usually  stamped : 

"Pay  to 

or  order,  for  colln  for  acct 
of  Arctic   National   Bank,   N.  Y. 

JOHN  SMITH,  Cashier." 

The  correspondence  of  the  bank  is  conducted  in  the  name  of  the 
cashier,  and  when  his  signature  is  alone  required  that  of  the  presi- 
dent may  be  substituted,  but  the  alternate  substitution  cannot  be 
made.  Formerly  a  cashier  could  hold  no  stock  in  his  bank,  and  it 
was  regarded  an  improper  thing  for  him  to  keep  his  personal  ac- 
count in  it.  The  pecuniary  relations  of  the  president,  also,  toward 
his  bank  were  the  same.  This  is  no  longer  the  case.  The  cashier 
is  usually  a  stockholder,  and  often  a  director.  Under  the  National 


THE  CASHIER.  73 

banking  system,  whereby  personal  liability  to  the  amount  of  the 
stock  is  borne  by  everyone,  if  the  cashier  owns  stock  he  is  sup- 
posed to  be  more  interested  in  the  success  of  the  bank  than  if 
he  had  no  pecuniary  interest. 

The  cashier  is  appointed  by  the  directors,  and  may  serve  for  any 
length  of  time.  He  gives  a  bond  for  ten  thousand  or  twenty 
thousand  dollars  for  the  faithful  performance  of  the  duties  of  his 
office,  and  which  is  signed  by  two  sureties.  Each  clerk  also  gives  a 
similar  bond,  and  usually  for  five  thousand  dollars.  These  bonds 
do  not  cover  losses  occasioned  by  misjudgment  or  neglect,  but  only 
fraudulent  transactions.  The  requirement  would  be  unreasonable  to 
hold  these  officials  liable  for  losses  of  every  kind. 

The  bondsmen  are  men  of  character  and  wealth.  Their  names  are 
submitted  to  the  board  of  directors,  or  more  generally  to  the  offi- 
cers, for  the  purpose  of  making  whatever  investigation  may  be  need- 
ful. If  they  do  not  approve  of  those  offered,  others  must  be  pro- 
cured. In  the  event  of  a  loss,  which  the  bondsmen  must  pay,  it  is 
divided  among  them  equally. 

When  an  official  has  been  promoted  he  must  give  another  bond, 
as  the  existing  one  does  not  protect  the  bank  in  the  event  of  a 
fraudulent  loss  occasioned  by  him  after  his  promotion.  Recently, 
several  cases  have  come  to  light  of  negligence  on  the  part  of  di- 
rectors in  not  procuring  new  bonds  after  making  promotions. 
Frauds  were  discovered,  the  bondsmen  were  sued,  but  the  courts 
decided  that  the  bonds  given  simply  related  to  the  conduct  of  the 
principals  when  holding  the  offices  named  in  the  instruments. 

Although  the  cashier  is  appointed  by  the  board  of  directors,  and 
is  amenable  to  them  and  within  their  power  of  removal,  he  is  also 
the  representative  of  the  stockholders.  If,  therefore,  the  president 
or  directors  should  attempt  to  use  the  funds  of  the  bank  in  an  il- 
legal manner,  it  would  be  the  duty  of  the  cashier  to  prevent  them 
from  doing  so  if  possible.  His  salary,  and  also  that  of  the  presi- 
dent, is  varied  by  the  duties  and  responsibilities  assumed.  In  the 
larger  banks  the  president,  when  he  is  the  real  manager,  gets  from 
five  to  fifteen  thousand  dollars  a  year,  and  the  cashier  from  five  to 
ten  thousand  dollars.  The  country  banks  pay,  perhaps,  half  these 
figures.  These,  however,  are  only  crude  approximations  of  the  re- 
muneration received. 

As  the  cashier  is  the  ostensible  executive  officer  of  a  bank,  he  is 
presumed  to  have,  in  the  absence  of  positive  restrictions,  all  the 
power  necessary  to  transact  its  business.  Thus,  in  the  absence  of  re- 
strictions, if  he  should  procure  a  bona-fide  rediscount  of  any  paper 
of  the  bank,  his  endorsement  would  bind  it,  because  he  has  the 
implied  power  to  transact  such  business.  But  he  could  not,  by 
virtue  of  his  official  relation  to  his  bank,  bind  it  as  an  accommo- 
dation endorser  of  his  own  promissory  note.  Such  a  transaction 


74  PRACTICAL    BANKING. 

would  not  be  within  the  scope  of  his  general  powers,  and  if  a  per- 
son should  accept  an  endorsement  of  that  nature  he  could  not 
recover  of  the  bank,  in  case  the  note  was  not  paid,  without  prov- 
ing that  it  specially  authorized  the  cashier  to  make  the  endorse- 
ment. There  is  no  presumption  in  favor  of  the  delegation  of  such 
a  power.* 

One  of  the  first  duties  on  reaching  the  bank  in  the  morning  is 
to  attend  to  the  correspondence.  In  some  of  the  New  York  City 
banks  this  is  very  extensive.  Formerly  the  letters  were  opened  by 
the  cashier,  but  now  they  are  given  to  clerks  appointed  for  that 
purpose.  The  letters  containing  cash  items  are  retained  by  the 
tellers.  Those  which  must  be  answered  by  the  cashier  himself  are 
termed  "  special  letters,"  and  are  laid  on  his  desk  in  the  early  part 
of  the  morning.  These  may  be  applications  for  discounts,  proposals 
from  new  customers,  orders  for  the  purchase  or  sale  of  stocks  and 
bonds,  letters  asking  for  advice  concerning  the  standing  of  persons, 
opinions  concerning  the  worth  of  certain  bonds  or  stocks,  or  com- 
plaints concerning  the  conduct  of  the  business  of  the  bank.  The 
answers  are  copied  in  a  book  kept  for  that  purpose. 

The  number  of  letters  daily  received  by  a  bank  having  a  large 
correspondence  may  be  from  two  hundred  to  two  thousand.  Most  of 
them  are  formal,  containing  a  statement  of  enclosures,  and  can  be 
easily  answered.  Printed  forms  are  used  in  most  cases  both  in  send- 
ing such  enclosures,  and  in  acknowledging  their  receipt.  Mere  ac- 
knowledgments are  not  usually  copied. 

All  the  checks  received  in  the  morning  letters  which  can  be 
sent  to  the  Clearing-house  are  put  in  the  package  which  is  to  be 
sent  there,  as  will  be  explained  hereafter.  The  amount  thus  re- 
ceived daily  in  some  cases  is  very  large,  running  into  the  millions. 

A  cashier  of  one  of  the  best-conducted  banks  in  New  York 
City  has  thus  described  the  usual  daily  routine  of  his  business. 
After  examining  a  dozen  papers  to  which  the  bank  subscribes,  he 
looks  around  to  see  that  all  the  clerks  are  on  hand  and  are  pre- 
paring the  exchanges  for  the  Clearing-house.  By  a  few  glances  he 
can  tell  whether  the  work  is  progressing  satisfactorily.  If  a  vacant 
place  is  seen,  then  it  is  presumed  that  a  clerk  is  absent,  and  some- 
body must  be  found  to  supply  his  place.  In  the  morning,  almost 
all  the  clerks,  except  the  bookkeepers  and  the  heads  of  the  depart- 
ments, are  engaged  in  preparing  the  exchanges.  In  that  bank  the 
letters  are  so  numerous  that  a  large  force  is  necessary  in  order  to 
get  the  exchanges  ready  in  time,  and  a  vacancy  must  be  speedily 
filled  if  possible.  Sometimes  he  is  obliged  to  assist  himself.  If  a 
clerk  does  not  appear  within  ten  minutes  past  nine  he  is  regarded 
late. 

*  See  the  opinion  of  Ch.  J.  Waits  in  Savings  Bank  v.  Parmlee,  U.  S ,  Supreme  Court, 
1877. 


THE    CASHIER.  75 

The  special  letters  are  brought  to  the  cashier,  and  those  requir- 
ing immediate  attention  are  answered  at  once ;  others  at  a  more  con- 
venient time.  Then  letters  containing  remittances  are  brought  in 
from  the  bookkeepers.  Those  requiring  special  attention  are  laid 
on  one  side,  and  the  instructions  they  contain  are  entered  in  a  special 
letter  book  for  the  use  of  the  corresponding  clerk.  For  example,  if 
an  advice  concerning  a  payment  is  requested,  it  is  the  duty  of  the 
corresponding  clerk  to  make  the  necessary  advice.  The  last  duty 
which  the  latter  performs  in  the  day  is  to  examine  his  special  letter 
book,  for  the  purpose  of  assuring  himself  that  all  letters  requiring 
special  attention  on  his  part  have  been  answered. 

When  the  directors  meet,  as  we  have  seen,  the  cashier  meets 
with  them.  Besides,  he  examines  loans  secured  by  collateral,  to 
reassure  himself  of  the  sufficiency  of  the  security,  or  perhaps  with 
a  view  of  calling  the  loan,  if  the  collateral  that  is  securing  pay- 
ment be  of  a  kind  which  the  bank  does  not  wish  to  hold  longer. 
He  also  examines  the  balance  books  and  directs  all  the  detail  of 
the  bank,  keeping  himself  informed  concerning  the  business  done. 
Such  are  the  leading  features  of  his  daily  business,  interspersed 
with  frequent  calls  and  interruptions.  The  afternoon  hours  crj  not 
so  pressing,  and  the  duties  are  more  varied. 

When  the  money  market  is  "easy,"  the  duties  of  a  cashier  are 
very  agreeable.  The  departments  of  the  bank  move  along  harmoni- 
ously. The  dealers  call  and  transact  their  business,  and  go  away  in 
good  humor.  If  they  want  to  get  notes  discounted  this  is  done 
promptly.  Very  often  social  topics  are  pleasantly  blended  with 
their  negotiations.  But  when  the  market  shows  signs  of  tightening, 
then  these  pleasant  daily  scenes  are  quickly  changed.  The  amount 
of  paper  offered  for  discount  is  suddenly  doubled,  and  the  amount 
discounted  is  reduced  one-half.  Merchants  are  not  satisfied  with 
their  usual  preparations  for  future  payments.  They  are  determined 
to  get  more  ready  money,  if  possible,  and  eagerly  demand  more 
loans.  These  are  the  times  that  test  the  ability  of  the  bank  man- 
ager, and  which  prove  his  fitness  or  unfitness  for  his  position. 

One  of  the  duties  of  a  cashier  is  to  increase  in  every  proper 
way  the  business  of  the  bank.  The  banking  business  in  this  respect 
does  not  differ  from  any  other.  The  profits  in  the  business  in 
most  banks  are  made  on  the  deposits.  To  increase  these,  there- 
fore, is  the  ambition  of  all  concerned  in  the  enterprise,  and  especi- 
ally of  those  who  are  the  most  active  and  responsible  in  its 
management.  New  accounts  are  eagerly  sought.  While,  however, 
this  is  true,  no  well-conducted  bank  will  blindly  open  an  account 
with  any  person.  He  must  be  properly  identified  and  introduced, 
and  his  character  must  be  ascertained.  Some  banks  will  not  take 
the  accounts  of  persons  introduced  by  a  clerk  of  their  own,  for  the 
reason  that  it  is  possible  for  him  to  be  a  confederate  in  some 


76  PRACTICAL    BANKING. 

plan  with  the  introducer  to  defraud  the  bank.  The  clerk  might 
be  enabled  to  give  him  a  fictitious  credit  or  in  some  way  assist 
him  in  defrauding  the  institution.  If,  therefore,  a  clerk  should  in- 
troduce a  customer,  an  additional  introduction  would  also  be  re- 
quired. If  he  were  a  merchant,  the  introduction  of  another  mer- 
chant would  be  needful.  If  the  applicant  were  not  engaged  in 
business,  he  might  present  such  facts  as  would  satisfy  the  cashier 
concerning  his  worthiness  without  further  investigation.  If  the 
cashier  should  decide  to  open  an  account  with  him,  he  would  be 
required  to  sign  his  name  in  a  book  kept  for  that  purpose.  All 
that  the  applicant  has  said  concerning  himself,  and  whatever  can  be 
found  out  about  him  afterward,  is  recorded  in  a  book  which  has 
been  already  described. 

It  is  not  possible  for  the  cashier  to  supervise  the  books  of  a 
bank  personally,  but  he  should  look  at  them  frequently  enough  to 
satisfy  himself  of  their  correctness.  Clerks  sometimes  get  careless 
and  negligent,  and  may  carry  over  their  work  from  day  to  day,  or 
portions  of  it,  if  they  are  not  watched.  A  supervision  of  this 
kind  is  needed  in  order  to  maintain  the  best  discipline.  Without 
it,  clerks  too  often  become  careless  and  inattentive  and  delay  their 
work  in  various  ways.  A  cashier  should  have  an  intimate  knowl- 
edge of  the  theory  of  accounting  maintained  by  his  bank,  so  that 
when  he  examines  any  book  he  will  be  able  at  once  to  understand 
it.  We  do  not  suppose  that  every  bank  has  such  a  cashier,  but 
unquestionably  it  should  have.  Bank-booking  is  generally  quite 
simple,  and  no  very  high  order  of  ability  is  required  to  master 
it.  Banks  differ  from  one  another  in  many  details  of  doing  busi- 
ness, but  in  no  case  are  these  difficult  to  comprehend. 


THE    PAYING    TELLER.  77 


CHAPTER  IX. 
THE  PAYING  TELLER. 

Having  described  the  duties  of  the  cashier,  we  will  describe  those 
of  the  paying  teller,  which  are  regarded  as  next  in  importance.  He 
is  frequently  called  the  first  teller.  Whenever  the  cashier  is  pro- 
moted, the  paying  teller  usually  succeeds  to  his  place.  It  is  some- 
times maintained,  however,  that  the  general  bookkeeper  and  the  cor- 
responding clerk  ought  to  have  an  equally  good  chance  for  the  office. 

The  paying  teller  receives  a  higher  salary  than  any  other  clerk, 
and  the  general  bookkeeper  the  next  highest.  The  paying  teller's 
salary  is  larger,  because  he  is  trusted  with  more  funds,  and  because 
the  responsibility  put  on  him  to  scrutinize  signatures  and  to  pay 
money  is  peculiar  and  very  great. 

To  him  is  committed  the  custody  and  disbursement  of  the  funds 
of  the  bank.  The  amount  of  money  in  his  keeping  in  a  large  bank 
may  amount  to  several  millions  of  dollars.  In  such  a  bank  several 
apartments  in  the  vault  are  appropriated  to  his  exclusive  use.  A 
cashier  said  to  the  writer  not  long  since  that  in  his  bank  an  aver- 
age amount  of  two  mi-llion  dollars  was  kept.  The  responsibility  of 
keeping  it  was  too  great  for  one  man.  The  vault  where  it  was 
kept  was  divided  into  compartments.  The  paying  teller  had  three, 
the  receiving  teller  one,  the  note  teller  one,  the  collection  clerk  one, 
the  discount  clerk  one,  and  the  loan  clerk  two,  and  one  was  as- 
signed to  the  cashier.  Two  locks  were  placed  on  each  of  two 
of  the  three  compartments  assigned  to  the  paying  teller.  The 
combination  of  one  lock  was  known  only  to  the  cashier,  and  the 
combination  of  the  other  only  to  the  paying  teller.  Consequently 
neither  person  could  open  the  compartments  without  the  knowl- 
edge of  the  other.  In  these  compartments  was  kept  the  greater 
part  of  the  reserve  of  the  bank.  In  the  third  compartment,  which 
had  only  one  lock,  the  paying  teller  kept  the  balance  of  his  cash, 
which  changed  from  day  to  day,  and  which  necessarily  must  be 
under  his  control.  The  cashier  knew  every  combination  except  those 
of  the  paying  teller. 

The  paying  teller  is  therefore  the  sole  guardian  of  his  cash.  No- 
body ever  thinks  of  invading  his  compartments;  but  there  are  times 
when  this  may  be  necessary.  He  may  be  taken  sick,  and  in  that 


78  PRACTICAL    BANKING. 


event  another  person  must  open  the  compartments  to  get  the  funds 
for  carrying  on  the  business  of  the  bank.  There  are  times,  too, 
when  investigations  are  made,  annually  or  otherwise,  all  the  com- 
partments are  opened,  and  their  contents  are  examined.  But,  ex- 
cept on  such  occasions,  or  when  fraud  is  suspected,  the  teller's 
compartments  are  not  opened  unless  he  is  present.  The  reader  can 
well  understand  why  such  strictness  prevails.  If  the  cashier  were 
accustomed  to  going  to  them,  if  any  loss  should  occur,  it  might  be 
very  difficult  to  trace.  The  paying  teller,  therefore,  has  sole  charge 
of  his  compartments,  and  alone  is  responsible  when  losses  arise. 

The  paying  teller  reaches  the  bank  about  nine  o'clock  in  the* 
morning.  He  unlocks  his  compartments,  and  the  porter  assists 
him,  if  necessary,  in  carrying  to  his  desk  the  money  which  is 
likely  to  be  wanted  during  the  day.  His  compartment  is  then 
locked,  and  he  returns  to  his  desk. 

The  different  kinds  of  money  paid  by  him  are  familiar  to  every 
one.  It  consists  principally  of  United  States  notes  and  National 
bank  notes.  The  former  are  issued  by  the  Government,  and  are  more 
frequently  called  "  greenbacks ;  "  the  latter  notes  are  made  by  the 
banks  themselves.  Then  there  is  coin, — gold,  silver — "the  dollar  of 
the  daddies," — and  minor  coins.  Silver  certificates  are  also  paid,  and 
less  frequently  gold  certificates.  They  represent  the  amount  of  gold 
or  silver  specified  on  their  face  in  the  possession  of  the  Treasury 
department,  and  which  can  always  be  obtained  by  presenting  these 
certificates  to  the  United  States  Treasurer  at  Washington,  or  to  any 
assistant  treasurer.*  To  facilitate  payments,  the  money  drawer  is 
divided  into  sections  which  contain  notes  of  different  denomina- 
tions. A  package  of  fives  contains  two  hundred  and  fifty  dollars.  A 
package  of  tens  five  hundred  dollars.  A  package  of  twenties  one 
thousand  dollars.  There  are  other  packages  for  varying  amounts. 
When  a  check  is  presented  for  the  amount  of  any  packet,  it  is  de- 
livered without  recounting.  For  intermediate  amounts,  of  course, 
the  packets  must  be  opened. 

All  payments  of  money  are  made  by  one  teller;  consequently  all 
the  exchanges  sent  to  the  Clearing-house  must  appear  in  his  ac- 
counts. It  may  be  stated  here  that  this  is  composed  of  the  checks 
on  other  banks  taken  on  deposit,  and  also  those  which  are  re- 
ceived in  letters  from  other  banks.  Formerly,  it  was  the  duty  of 
the  paying  teller  to  receive  the  exchanges  in  the  morning,  and  to 
prepare  them  for  the  clearing  house.  This,  however,  is  now  the 
duty  of  the  third  teller,  though  sometimes  performed  by  the  second 
or  receiving  teller.  In  the  largest  banks  the  business,  of  coui 
is  more  subdivided  than  in  the  smaller  ones.  But  in  all  cases  the 
exchanges,  by  whomsoever  prepared,  are  charged  to  the  first  teller. 
On  this  topic  more  will  be  said  hereafter. 

*  There  are  nine  assistant  treasurers  in  the  United  States. 


THE    PAYING    TELLER.  79 

At  ten  precisely  the  teller  is  ready  for  the  business  of  the  day, 
which  consists  in  paying  checks  of  depositors  of  the  bank.  These 
checks  are  usually  given  by  depositors  to  other  persons,  but  they 
also  draw  money  themselves  from  the  bank.  In  any  case,  an  order 
or  check  is  necessary  to  get  it. 

It  is  a  good  rule  when  drawing  a  check  on  a  bank  or  banker  to 
make  it  payable  to  the  order  of  an  individual,  firm,  or  institution, 
as  the  case  may  be.  By  this  means  the  drawer  is  saved  from  the 
risk  of  loss,  in  case  the  holder  of  the  check  loses  it — a  risk  to  which 
all  holders  of  checks  payable  to  bearer  are  subject. 

In  paying  a  note  or  acceptance  to  a  bank  or  banker,  instead  of 
drawing  bank  notes  for  the  amount,  the  payer  should  request  the 
paying  teller  of  the  bank  in  which  his  funds  are  deposited  to  certify 
that  his  check  is  good  for  the  amount,  and  hand  it  to  the  bank  or 
banker  who  holds  the  note  or  acceptance.  The  check  in  all  cases 
should  be  made  payable  to  his  or  their  order  for  the  amount  of 
the  same. 

When  making  up  a  list  of  checks  for  deposit,  the  depositor 
should  endorse  them  all,  whether  payable  to  bearer  or  order,  with 
this  phrase : 

"For  Deposit." 

A.  B.  &  Co. 

Or,  "  For  Deposit  at  Arctic  Bank." 

A.  B.  &  Co. 

By  this  means  the  depositor  protects  himself  from  risk  of  loss  by 
losing  any  of  the  checks;  for  though  payable  to  his  order,  and  en- 
dorsed by  him,  they  cannot  be  collected  by  any  person  except  the 
clerk  of  the  bank  in  which  the  deposits  are  made,  and  consequently 
they  would  be  valueless  in  the  hands  of  a  stranger. 

In  the  case  of  checks  payable  to  bearer,  the  safer  plan  is  to 
write  across  their  face  "  See  endorsement,"  or  "  For  deposit."  In 
England,  the  custom  prevails  of  crossing  checks  payable  to  bearer. 
This  crossing  consists  simply  of  drawing  across  the  face  of  the 
check  two  parallel  lines,  between  which  are  written  the  words,  "& 
Co.,"  after  a  blank  space.  The  check  can  then  be  collected  only 
through  a  bank  or  banker. 

To  obviate  the  trouble  of  writing  in  full  the  words,  "  For  de- 
posit," or  "  For  deposit  at  Arctic  Bank,"  a  stamp  may  be  used, 
leaving  only  the  signature  of  the  party  to  be  written  underneath  by 
himself. 

A  banking  firm  in  San  Francisco  have  the  following  rules  printed 
on  the  inside  of  the  front  cover  of  their  check  books  in  order  to 
impress  on  their  customers  the  importance  of  using  every  precaution 
against  fraudulent  alterations  or  forgery  of  checks  : 


80  PRACTICAL    BANKING. 

GUARD    AGAINST    FRAUD.' 

Draw  all  your  checks  from  your  own  book. 

Number  your  checks  in  regular  succession. 

Write  plainly.  Use  plenty  of  good  black  ink,  and  allow  it  to 
penetrate  the  fibre  of  the  paper  before  blotting. 

Begin  writing  and  figures  close  to  left-hand  margin,  and  leave  no 
space  for  additions  or  alterations. 

See  that  the  figures  correspond  with  the  body  of  the  check,  and 
that  dollars  are  plainly  separated  from  cents,  thus :  $  iooT7c5ff  or 
llOOjfr. 

Keep  this  check-book  in   your  safe  when  not  in  use. 

Deposit  your   pass  book  regularly  for  monthly  settlement. 

In  a  recent  address  by  an  experienced  banker,*  he  says  that  "a 
good  bank  clerk  is  one  who,  being  thoroughly  trustworthy,  has  a 
natural  aptitude  for  figures,  who  is  ready  of  hand  and  quick  of  eye, 
who  can  handle  money  neatly  and  expeditiously,  and  see  in  an  in- 
stant whether  what  he  handles  is  good  or  otherwise.  A  first-rate 
teller  will  detect  a  forged  note  or  spurious  coin  by  its  very  touch, 
even  while  he  is  handling  thousands.  Those  who  handle  checks 
must  acquire  a  rapid  power  of  observing  signatures,  and  be  able  to 
detect  in  an  instant  any  attempt  at  fraud  or  forgery." 

About  half-past  ten  the  exchanges  from  the  Clearing-house  are 
brought  in  by  the  messenger.  If  the  paying  teller  examined  the 
checks  received  he  would  be  obliged  to  neglect  other  work,  for 
they  frequently  amount  to  several  millions.  Three  men  are  often 
sent  by  a  bank  to  the  Clearing-house.  One  man,  a  messenger, 
carries  the  exchanges,  another  guards  him,  and  the  third  is  the  set- 
tling clerk.  The  settling  clerk  sits  at  a  desk  assigned  to  him.  The 
messengers  start  one  after  another  in  the  manner  fully  explained 
in  the  latter  part  of  this  work.  The  settling  clerk  receives  the 
envelopes,  containing  the  checks  on  his  bank,  from  the  messen- 
gers of  other  banks  as  they  are  passed  in  to  him.  He  keeps  these 
in  a  certain  order,  and  enters  the  amount  from  each  bank  in  the 
appropriate  place  in  a  statement  prepared  for  that  purpose.  As 
soon  as  the  proof  is  made  the  balances  are  struck,  and  the  mes- 
senger and  assistant  return  to  the  bank.  The  settling  clerk  remains 
to  make  the  final  proof,  and  then  he  returns.  The  messengers 
bring  with  them  the  record  of  the  balance,  which  is  generally  cor- 
rect. Sometimes,  but  not  often,  a  small  variation  is  discovered  after 
further  examination,  which  is  always  made. 

When  the  debit  exchange  is  thus  received  it  must  be  carefully 
examined.  From  what  has  been  said  already  the  reader  will  un- 
derstand that  it  consists  of  checks  drawn  on  the  bank  to  which  it 
has  been  returned.  The  signature,  endorsement,  and  whatever  pe- 

*  Mr.  George  Hague,  General  Manager  of  the  Merchants'   Bank  of  Canada. 


THE  PAYING  TELLER.  8 1 

culiarity  a  check  may  possess,  must  be  examined  before  charging  it 
to  the  drawer.  This  work  is  done  during  the  intervals  of  other 
business,  and  not  so  much  haste  is  required  in  completing  it  as  in 
preparing  the  credit  exchange  for  the  Clearing-house,  because  that 
must  be  there  by  ten  o'clock,  otherwise  a  bank  is  fined  for  tardi- 
ness. 

The  assistant  bookkeepers  check  out  the  exchanges,  though  this 
work  is  sometimes  done  by  the  bookkeepers  who  post  them  in  their 
ledgers,  and  bring  the  totals  of  their  postings  to  the  paying  teller,, 
who  compares  the  record  with  the  amount  brought  from  the  Clear- 
ing-house, which  must  be  the  same. 

Having  now  considered  the  duties  of  a  paying  teller  with  respect 
to  preparing  his  exchanges,  we  proceed  to  consider  another  very 
important  function  performed  by  him,  namely,  the  certifying  of 
checks. 

This  consists  in  writing  or  stamping  on  a  check  words  to  the 
effect  that  it  is  "good,"  which  signify  that  it  will  be  paid  on  pres- 
entation. 

When  a  depositor  has  enough  money  in  the  bank  to  pay  the 
check  presented  for  certification,  the  duty  of  the  paying  teller  is  a 
very  simple  one ;  he  will  not  hesitate  to  certify  such  a  check.  Re- 
quests of  this  kind  are  often  made  in  order  to  render  a  check 
more  negotiable.  A  person,  for  example,  may  be  unwilling  to  re- 
ceive a  check  if  drawn  in  the  ordinary  manner;  but  if  certified  by 
the  bank  on  which  it  is  drawn,  no  one  will  hesitate  to  receive  it. 

The  paying  teller  is  often  asked  to  certify  checks  for  a  much 
larger  sum  than  the  drawer  may  have  on  deposit,  and  the  question 
then  arises,  "  Shall  I  grant  or  refuse  the  request  ? "  This  is  often 
a  very  delicate  question  with  him.  When  observing  the  National 
banking  law  his  duty  is  very  plain,  for  he  is  not  permitted  to  cer- 
tify beyond  the  amount  which  the  depositor  may  have  in  the  bank. 
Under  the  State  bank  system,  however,  no  such  regulation  prevails. 

Whenever  the  request  is  made  the  drawer  expects  to  make  de- 
ficiency good  within  a  short  time,  generally  before  the  close  of  the 
day.  The  paying  teller  is  given  a  very  wide  latitude  in  granting 
or  declining  these  requests.  Usually  he  acts  on  his  own  authority, 
though,  of  course  there  is  nothing  to  prevent  him  from  getting  the 
opinion  of  the  cashier  or  president.  In  all  cases  the  question  is 
decided  very  quickly.  If  the  person  asking  for  the  favor  is  an  old 
customer,  and  has  always  been  prompt  in  fulfilling  his  engagements, 
and  whose  account  is  a  large  and  desirable  one,  the  paying  teller 
would  not  hesitate  to  certify.  If  he  were  a  new  dealer,  and  not 
well  known  to  the  paying  teller,  he  would  refuse.  A  good  au- 
thority says,  "  The  discretion  of  the  teller  in  certifying  checks  is 
for  the  most  part  independent  of  his  superior  officers,  and  they  are 
averse  to  interfering  with  it.  In  doubtful  cases  he  refers  to  them 


82  PRACTICAL   BANKING. 

for  special  instruction.  Dealers  apply  to  them  also  to  reverse  his 
judgment,  but  not  often  with  success.  Either  of  them  would  be 
likely  to  answer,  'The  teller  understands  his  business  better  than  I 
do.'  Such  is  the  influence  acquired  by  a  competent  and  judicious 
clerk  in  this  post  that  he  obtains  a  degree  of  respect  of  the  cus- 
tomers of  the  bank  a  little  less  than  is  accorded  the  president  or 
cashier." 

In  the  absence  of  the  paying  teller  the  receiving  teller  occupies 
the  place,  and  the  same  authority  to  certify. 

Certified  checks  are  generally  returned  in  the  debit  exchange  on 
the  following  day  through  the  Clearing-house.  But  very  often  they 
are  remitted  to  other  places  and  do  not  appear  for  redemption  for 
a  considerable  time.  They  are  charged,  however,  to  the  drawers 
immediately,  for  certification  is  regarded  equivalent  to  payment. 

The  city  banks  have  a  book  in  which  these  are  recorded.  The  ag- 
gregate is  posted  to  the  credit  of  an  account  called  "  Certified 
Checks,"  which  is  balanced  by  the  separate  charges  as  the  checks 
come  in.  When  the  checks  are  paid  they  are  entered  on  the  debit 
side  of  this  account ;  consequently  it  always  shows  the  balance  of 
certified  checks  outstanding.  Formerly  the  dealer's  ledger  account 
was  not  charged  with  such  checks  until  they  were  received  for  pay- 
ment. They  might  be  out  so  long  as  to  be  forgotten  by  the  teller 
and  the  bookkeeper,  and  it  was  not  difficult  to  practice  a  fraud  on 
a  bank  by  checking  out  deposits  to  such  an  extent  as  to  leave  an 
insufficient  sum  for  the  redemption  of  a  certified  check  when  pre- 
sented. The  losses  to  which  the  old  methods  gave  rise  led  to  the 
adoption  of  the  existing  plan  of  posting  certifications. 

A  great  variety  of  checks  are  drawn  and  presented  for  payment. 
Every  check  requires  more  or  less  examination.  One  of  the  most 
common  defects  is  the  lack  of  a  proper  endorsement.  Checks  are 
not  infrequently  given  to  persons  who  know  but  little  about  such 
matters,  and  who  forget  to  fulfill  this  requisite,  or  who,  perhaps,  are 
ignorant  of  the  fact  that  a  check  is  made  payable  to  their  order. 
Sometimes  checks  are  post-dated,  and  are  presented  for  payment 
before  the  time  fixed  by  the  drawers.  Sometimes  the  dates  are 
altered,  and  the  teller  must  be  satisfied  whether  the  alteration .  is 
material  or  not.  Sometimes  a  check  is  drawn  for  a  larger  amount 
than  the  depositor  may  have  on  hand,  or  the  paying  teller  may 
think  so,  and  it  is  necessary  for  him  to  ask  the  bookkeeper  what 
the  balance  of  the  depositor's  account  may  be  before  paying  it. 
Many  irregularities  and  delays  and  inquiries  may  arise  beside  those 
mentioned. 

All  checks  that  have  passed  the  paying  teller's  examination  are 
given  to  a  clerk  for  entry  on  his  check  list,  and  are  charged  to  their 
respective  accounts  in  the  ledger,  except  by  those  banks  which  use 
the  Boston  system  of  ledgers,  to  be  hereafter  explained,  in  which 
the  check  list  is  not  used. 


THE    PAYING    TELLER.  83 

In  paying  checks  the  teller  must  think  of  three  things :  first,  is 
the  signature  genuine ;  secondly,  is  the  account  of  the  drawer  good ; 
and,  thirdly,  is  the  person  presenting  the  check  entitled  to  receive 
the  money. 

Much  might  be  said  under  the  first  head.  A  great  many  forged 
checks  are  presented  and  paid.  It  is  one  of  the  terrors  of  banking. 
All  kinds  of  devices  have  been  invented  for  preventing  forgeries. 
Various  kinds  of  paper  have  been  tried.  The  use  of  green  ink  on 
the  United  States  and  National  Bank  notes  was  to  render  their 
forgery  more  difficult.  And  indeed  it  has  proved  one  of  the  most 
effective  of  preventives.  Private  marks  in  signatures  are  sometimes 
used.  This  must  be  said,  however,  concerning  them :  if  a  forger  finds 
out  what  the  private  mark  is  and  successfully  counterfeits  it,  the 
paying  teller  is  more  likely  to  be  deceived  than  he  would  be  if 
no  such  mark  were  employed. 

One  of  the  universal  precautions  observed  by  banks  to  prevent 
forgeries  is  to  require  every  depositor  to  write  his  name  in  a  signa- 
ture book.  With  this  the  paying  teller  compares  doubtful  signa- 
tures. Every  drawer  should  always  sign  his  name  in  the  same 
manner,  or,  if  varying  it,  should  acquaint  the  paying  teller  with  the 
variation. 

The  paying  teller  must  also  satisfy  himself  concerning  the  genu- 
ineness of  the  endorsement  on  every  check  presented  for  pay- 
ment. 

The  second  inquiry  is,  has  the  drawer  a  sufficient  deposit  to  pay 
the  check.  In  every  large  bank  several  hundred  depositors  trans- 
act business  with  it.  They  have  various  times  and  methods  of  de- 
positing. Some  draw  many  checks  daily,  and  some  only  a  few,  or 
at  rare  intervals.  The  deposits  of  a  bank,  therefore,  are  constantly 
varying  in  amount.  How  then  can  a  paying  teller  recall  the  condi- 
tion of  every  depositor's  account? 

We  cannot  describe  how  a  paying  teller  performs  this  important 
part  of  his  work  any  better  than  Gibbons  has  done.  By  carefully 
examining  the  deposits  and  checks  of  a  dealer,  it  is  easy  to  judge 
whether  they  are  the  proper  returns  from  his  business,  or  whether 
they  are  mostly  transfers  between  different  persons  and  accounts ; 
also  to  what  extent  his  balances  are  maintained  by  loans  and  tran- 
sient accommodations.  It  is  not  difficult  to  ascertain  whether  a 
man  uses  his  credit  excessively  or  with  prudence ;  nor  to  get  infor- 
mation of  his  personal  habits,  associations,  and  general  character. 
The  contact  of  the  teller  with  merchants  in  all  branches  of  trade 
affords  many  opportunities  of  inquiry  which,  with  those  in  possession 
of  the  bank  officers,  enable  him  to  classify  the  dealers,  and  thus  to 
assist  his  memory. 

In  the  first-class  stand  those  of  known  large  capital,  who  never 
give  out  their  own  notes.  They  may  sell  on  credit,  but  they  al- 


84  PRACTICAL    BANKING. 

ways  buy  for  cash.  Their  deposits  in  bank  are  generally  far  greater 
than  their  immediate  wants.  When  their  checks  are  presented,  the 
teller  may  safely  pay  them  without  reference  to  the  condition  of 
their  accounts;  for  if  they  should  even  appear  overdrawn  at  the 
moment,  he  knows  that  they  will  make  an  ample  deposit  before  the 
close  of  the  day.  In  addition  to  this,  they  are  likely  to  have  a  con- 
siderable amount  of  promissory  notes  lodged  in  the  bank  for  collec- 
tion, which  are  collateral  security. 

The  middle  class  of  dealers  are  the  most  numerous.  Less  inde- 
pendent with  regard  to  capital,  and  relying  on  the  bank  for  loans, 
they  are  yet  generally  safe  and  trustworthy.  They  will  not  trans- 
gress its  rules,  lest  they  forfeit  its  confidence.  The  teller  pays  their 
checks  commonly  without  examining  their  accounts,  depending  on 
their  integrity  and  self-interest  to  rectify  possible  errors  by  over- 
draft or  otherwise. 

Next  come  the  retail  shopkeepers,  mechanics  and  small  manufac- 
turers. Many  of  this  class  keep  accumulating  accounts,  and  seldom 
call  for  loans ;  or  if  so,  to  a  very  moderate  extent.  Separately,  their 
deposits  are  not  large,  but  in  the  aggregate,  they  add  materially  to 
the  loaning  facilities  of  the  bank.  They  draw  but  few  checks,  and 
their  accounts  are  not  liable  to  sudden  changes.  The  teller  soon 
acquires  such  a  knowledge  of  them  as  to  remember  which  need 
watching;  and  the  bookkeepers  aid  him  in  this  by  an  alphabetical 
list  of  balances.  An  old  bank  gradually  expurgates  its  ledgers  of 
troublesome  accounts,  while  a  new  bank,  from  competition  for  busi- 
ness, or  non-acquaintance  with  the  character  of  dealers,  is  likely  to 
fall  heir  to  them. 

By  these  precautions  the  paying  teller  is  able  to  tell  what  checks 
ought  to  be  paid  and  what  ought  not  to  be.  Now  and  then  an 
overpayment  is  made,  but  rarely.  But  a  method  of  getting  money 
from  a  bank  is  sometimes  practiced,  which  though  illegal  is  success- 
ful. Two  persons  who  keep  accounts  in  different  banks  may  ex- 
change checks,  and  each  person  deposits  the  check  of  the  other. 
Afterward,  they  draw  out  money  on  their  own  checks.  Of  course, 
if  the  checks  originally  given  were  paid,  no  loss  would  ensue  to 
either  bank,  but  in  case  they  are  not  paid,  the  banks  lose.  When 
a  check  is  thus  deposited,  if  the  deposit  teller  should  have  any 
doubt  concerning  the  payment  of  it,  he  would  inform  the  paying 
teller  of  the  fact,  and  that  eventually  when  the  depositor  presented 
his  check  for  payment  he  would  get  no  money.  Such  a  thing  would 
not  happen  with  a  new  depositor,  for  a  bank  would  not  be  likely  to 
pay  out  money  when  it  had  received  none.  But  when  a  person  has 
been  depositing  for  a  considerable  time,  if  he  should  thus  slip  in  the 
check  of  another,  the  payment  of  which  was  doubtful  or  impossible, 
he  might  be  able  to  check  against  it  and  in  that  way  defraud  the 
bank.  This  process  of  exchanging  checks  and  drawing  against  them 


THE    PAYING    TELLER.  85 

is  called  "kiting,"  and  the  persons  who  practice  it  are  regarded 
dangerous  by  a  bank.  No  one  would  be  likely  to  succeed  a  second 
time  with  the  same  institution;  indeed,  when  a  person  is  detected  of 
doing  it,  his  account  is  closed,  and  the  bank  refuses  to  have  further 
dealings  with  him. 

Merchants  in  distant  cities  usually  make  their  notes  payable  in  a 
New  York  City  bank  and  remit  the  money  to  pay  them  previous  to 
their  maturing.  These  remittances  contain  a  letter  of  instruction 
which  is  delivered  to  the  paying  teller  who  pays  the  obligation 
when  it  is  presented.  After  canceling  it,  the  note  is  returned  to 
the  person  who  sent  the  money. 

Before  paying  an  endorsed  check  the  holder  must  be  identified. 
A  great  many  persons  holding  such  checks  present  them  for  pay- 
ment and  are  surprised  to  learn  that  identification  is  necessary.  A 
check  drawn  "  payable  to  bearer "  requires  no  identification,  and  if  a 
bank  should  pay  it,  in  no  event  would  it  be  the  loser;  but  if  it 
should  pay  a  check  payable  to  order  to  the  wrong  person,  then  it 
would  be  required  to  pay  a  second  time.  It  is  to  guard  against 
payment  to  the  wrong  person  that  checks  are  drawn  payable  to  order. 
It  is  a  form  of  security  which  should  not  be  omitted.  Even  if  a 
check  should  be  lost  or  stolen,  and  the  endorsement  of  the  person  to 
whose  order  it  was  payable  was  forged,  and  payment  was  demanded 
and  made,  the  bank  would  be  required  to  pay  a  second  time  to  the 
rightful  owner  of  the  check.  As  this  is  the  law,  banks  cannot  ex- 
ercise too  much  care  in  paying  checks  to  the  persons  who  are  en- 
titled to  the  money,  and  no  one  can  reasonably  complain  if  the 
utmost  precaution  is  observed  in  making  needful  inquiries  concern- 
ing those  who  present  checks  for  payment.  Nevertheless,  such  in- 
quiries are  sometimes  vexatious  and  annoying.  It  is  not  always 
easy  to  find  a  person  who  is  willing  to  go  to  the  bank,  or  who  can, 
to  identify  the  checkholder.  A  great  many  suits  have  arisen  from 
time  to  time  concerning  the  liability  of  banks  for  the  payment  ol 
checks  to  the  wrongful  person. 

Endorsed  checks  paid  to  the  Clearing-house  are  regarded  as  guar- 
anteed by  the  bank  from  which  they  come.  Any  bank  will  guaran- 
tee the  endorsement  of  a  dealer  who  is  well-known  to  it. 

Drawers  sometimes  direct  that  checks  which  they  have  given  be 
not  paid  on  presentation.  As  a  check  on  a  bank  is  an  order  for 
the  payment  of  money  belonging  to  the  drawer,  he  has  the  right 
to  revoke  it,  and  if  such  a  revocation  is  given,  and  the  bank  does 
nevertheless  pay,  it  assumes  a  new  risk.  It  is  therefore  very  im- 
portant to  keep  a  record  of  the  checks  whose  payment  has  been 
stopped.  Books  are  prepared  for  this  purpose,  one  for  each  ledger, 
and  arranged  alphabetically,  so  that  the  dealer's  page  may  be  referred 
to  as  quickly  as  possible.  The  direction  to  stop  payment  must  be 
in  writing,  and  all  the  particulars  concerning  the  check  on  which 


86  PRACTICAL    BANKING. 

payment  has  been  stopped  must  be  carefully  entered  with  full  ex- 
tracts from  the  letter  giving  directions  to  the  bank  concerning  the 
matter.  Some  banks  have  a  form  which  they  send  to  their  dealers 
to  be  filled  out  when  they  wish  to  stop  the  payment  of  a  check. 

As  soon  as  payment  has  been  stopped,  the  notice  is  sent  to  the 
paying  teller.  He  examines  it,  and  puts  his  initial  on  it,  and  turns 
it  over  to  the  bookkeeper,  who  records  the  fact.  He  is  the  per- 
son to  watch  the  matter,  because  he  has  the  record.  When  ex- 
changes come  from  the  Clearing-house,  he  compares  them  with  the 
stop  list  after  they  have  been  arranged  alphabetically,  and  runs  them 
over,  and  can  speedily  determine  whether  any  check  has  been  stopped. 
In  some  banks  as  soon  as  a  check  of  this  kind  appears,  he  takes 
it  immediately  to  the  cashier.  Nothing  important  is  done  without 
his  action. 

There  are  other  ways  by  which  the  bank  may  pay  and  receive 
checks  than  by  the  first  teller.  First,  the  note  teller  may  receive 
them  in  payment  of  a  note.  Secondly,  the  receiving  teller  may  take 
them  on  credit;  and,  thirdly,  the  runner  in  payment  of  a  draft. 
For  example,  if  Smith  has  a  balance  of  $5,000  in  a  bank  he  may 
draw  that  sum  from  the  paying  teller,  or  he  may  give  his  check 
for  it  to  another  person  for  deposit  in  the  same  bank,  or  he  may 
take  up  a  note  with  it  at  the  note-teller's  desk,  or  he  may  pay  a 
draft  to  the  runner  with  it.  Hence  he  may  draw  out  $  1 5,000  though 
having  but  one-third  of  this  sum  on  deposit.  Of  course  such  a 
transaction  is  fraudulent  and  rarely  happens.  But  it  is  possible. 

If  checks  are  not  paid  when  sent  through  the  Clearing-house  they 
are  chargeable  to  the  depositor's  account.  But  if  a  check  is  deposited 
in  the  same  bank  as  that  on  which  it  is  drawn  it  is  paid  when  taken 
by  the  receiving  teller,  as  truly  as  if  the  first  teller  paid  money  in 
discharge  of  it.  In  such  a  case  if  the  check  should  not  be  good, 
the  bank  might  be  obliged  to  look  to  the  drawer  of  it  and  not  to 
the  depositor.  So,  if  a  dealer  A  took  up  his  note  with  the  check  of 
another  dealer  B  on  the  same  bank,  the  bank  would  look  to  the 
drawer  of  the  check  and  not  to  the  dealer  for  the  money. 

When  the  time  for  serving  dealers  has  expired,  the  paying  teller 
makes  up  a  statement  of  the  day's  business.  This  is  called  a 
Proof.  This  proof  is  a  test  of  the  accuracy  of  the  day's  transactions. 
The  footings  of  cash  on  hand  must  agree  with  the  "  balance  of 
cash."  If  there  is  any  discrepancy  it  must  be  hunted  for  until 
found,  and  the  necessity  of  going  over  figure*  and  recounting  cash, 
after  the  close  of  a  hard  day's  work,  is  often  an  exasperating  trial 
of  the  teller's  patience. 

On  the  next  page  is  tne  paying  teller's  Proof  of  the  Arctic 
National  Bank  for  July  24th.  The  form  of  Proof  differs  in  banks. 
Some  tellers  have  a  simple  form,  like  that  given  here,  others  have 
a  much  more  elaborate  form : 


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88  PRACTICAL    BANKING. 


THE  RECEIVING  TELLER. 
CHAPTER  X. 


This  official  ranks  next  to  the  paying  teller,  and  usually  succeeds 
him  when  he  is  promoted. 

The  accounts  of  a  bank  may  be  divided  into  the  following  classes: 
general  accounts,  individual  accounts,  banks  and  bankers'  accounts, 
city  dealers'  accounts  and  collection  accounts.  The  general  ac- 
counts are  such  as  stock,  expense,  bills  discounted,  profit  and  loss, 
cash,  interest,  exchange  and  some  others. 

The  receiving  teller  receives  all  kinds  of  money  and  checks  from 
the  depositors.  The  book  in  which  these  deposits  are  entered  is 
called  the  RECEIVING  TELLER'S  CASH  BOOK.  He  has  two  books  of 
the  same  kind  for  alternate  use  by  the  teller  and  the  bookkeeper. 

The  original  entries  of  individual  deposits  are  made  by  the  re- 
ceiving teller,  and  the  other  entries  are  made  by  the  note  teller. 
The  latter  also  receives  the  money  paid  for  notes  lodged  for  collec- 
tion. Both  clerks  are  receiving  tellers,  the  receiving  teller  is  called 
the  second  teller,  and  the  note  teller  the  third.  This  rank  they 
hold  in  the  order  of  promotion. 

The  deposits  of  merchants  consist  of  the  various  kinds  of 
money  and  checks  already  described,  and  other  documents  repre- 
senting money.  The  depositor  is  required  to  state  the  details  of 
his  deposit,  and  a  form  is  given  him  to  fill  up,  which  saves  labor 
in  making  the  necessary  statement.  This  blank  is  called  a  de- 
posit ticket.  A  teller  will  not  receive  money  without  it.  The 
practice  is  different  in  country  banks,  as  will  be  hereafter  shown. 
If  his  cash  does  not  prove  at  the  end  of  the  day,  he  re-examines 
these  tickets  and  generally  can  find  out  where  the  error  is.  After 
proving  his  cash,  the  tickets  are  put  into  a  bundle  and  marked  and 
stored  for  future  reference. 

A  bank  located  in  a  large  city  has  an  exchange  drawer  or  rack 
which  is  divided  into  numerous  boxes.  The  checks  of  neighboring 
banks  received  for  deposit  are  assorted,  and  those  on  each  bank 
are  put  into  their  own  box. 

The  footings  of  the  checks  thus  received  are  copied  on  the  gen- 
eral list,  and  added  together  constitute  the  deposit  teller's  portion  of 
the  exchange  which  goes  to  the  Clearing-house. 


THE   RECEIVING  TELLER.  89 

There  are  no  complex  calculations  in  the  accounts  of  the  receiving 
teller.  His  duties  are  simple,  and  a  high  order  of  intelligence  is 
not  required  to  fulfill  the  duties  of  the  place.  Most  of  the  de- 
posits, especially  in  the  banks  in  the  large  cities,  consist  of  mer- 
chants' checks,  which  are  given  in  discharge  of  obligations  or  pur- 
chases. Some  of  these  are  certified  before  deposit  and  some  are  not. 
Whenever  the  depositor  is  well  known,  his  checks  are  received 
without  previous  certification.  But  in  other  cases  a  certification  is 
required. 

The  reader  should  not  confound  the  business  of  certifying  with 
that  of  over-certifying.  There  is  no  legal  objection  to  certifying  a 
check  to  the  amount  of  the  depositor's  balance.  The  National 
banking  law  prohibits  the  certifying  of  checks  only  in  excess  of  the 
depositor's  balance.  The  former  kind  of  certification  is  very  neces- 
sary. Many  persons  whose  financial  standing  is  not  known  give 
checks  outside  the  banks  on  which  the  checks  are  drawn. 
When,  therefore,  the  check  of  an  individual  bears  the  certification 
of  the  bank  on  which  it  is  drawn,  it  will  readily  pass  in  making 
payments,  or  be  taken  on  deposit  in  any  bank.  But  the  check  of 
an  unknown  person  would  be  received  with  hesitation.  It  might 
be  good,  and  it  might  not  be.  The  certification  of  a  check  by 
the  bank  on  which  it  is  drawn  adds  much  to  its  negotiability. 

The  receiving  teller  of  a  bank  may  have  reasons  for  requiring 
checks  to  be  certified  of  which  the  dealer  may  be  ignorant  and  per- 
haps cannot  be  informed.  Sometimes  a  very  considerable  degree  of 
tact  and  caution  are  necessary  in  determining  when  certifications 
should  be  required.  Dealers  should  not  be  offended  unnecessarily, 
yet  the  safety  of  the  bank  must  be  regarded  at  all  times.  To 
protect  it,  and  to  retain  the  friendship  and  good  will  of  dealers, 
is  sometimes  a  difficult  thing  to  do.  Some  persons  are  richly  en- 
dowed with  tact  and  power  of  discernment ;  they  always  know 
what  to  say,  and  how  to  say  it,  when  to  be  silent  and  not  excite 
distrust  or  arouse  the  ill-feeling  of  dealers.  By  other  persons  such 
a  knowledge  of  men  and  things  is  never  acquired,  though  their 
knowledge  in  many  ways  may  be  great  and  useful. 

The  receiving  teller  should  know  the  condition  of  all  accounts.  To 
do  this  he  must  ask  the  bookkeepers  what  is  their  average  run  ;  he 
should  personally  examine  the  ledgers,  and  also  the  deposits  and 
checks,  and  make  all  other  inquiries  of  persons  in  the  bank  or  else- 
where who  are  likely  to  throw  any  knowledge  useful  in  his  depart- 
ment of  the  business. 

The  receiving  teller  should  examine  the  signatures,  endorsements, 
dates,  and  other  features  of  checks,  the  same  as  the  paying  teller. 
Dealers  who  are  perfectly  honest  may  be  cheated  by  others,  and  de- 
posit fraudulent  or  "  kiting  "  checks.  The  depositor  should  endorse 
his  name  below  all  others  on  the  back  of  each  check.  The  receiving 


90  PRACTICAL    BANKING. 

teller  should  notice  especially  this  last  endorsement,  for  it  is  the  key 
to  discovery  if  anything  wrong  should  appear  in  the  future  history 
of  the  check.  At  times,  when  checks  are  rapidly  received  for  de- 
posit, it  is  impossible  to  examine  them  carefully,  and  hence  the 
greater  need  of  looking  at  the  endorsement  of  a  depositor.  When 
checks  are  finally  paid  where  they  are  made  payable,  errors  are  sure 
to  be  detected,  and  of  course  the  bank  receiving  them  ought  al- 
ways to  know  from  what  source  they  come,  in  order  to  know  what 
to  do  with  them  should  any  imperfection  be  discovered. 

Reclamations  between  banks  occur  daily.  Checks  are  dated  ahead, 
or  the  dates  are  obscure  or  omitted.  They  lack  intermediate  en- 
dorsement, or  they  are  endorsed  by  attorney  without  adequate  proof 
of  his  authority.  The  sum  in  the  body  of  the  check  may  not  cor- 
respond with  the  figures  below,  or  may  be  entirely  wanting.  Checks 
sometimes  are  paid  without  signature.  The  paying  teller  recognizes 
a  familiar  style  of  writing  and  the  omission  of  the  name  may  not  be 
detected.  Sometimes  they  are  thrown  into  the  wrong  box,  and  are 
taken  to  the  wrong  bank.  These  and  many  other  errors  happen. 
As  soon  as  discovered  the  checks  are  sent  back  to  their  proper 
places  for  correction. 

Merchants  sometimes  keep  accounts  with  more  than  one  bank. 
This  is  done  for  several  reasons.  One  reason  is  to  obtain  larger 
discounts.  Some  persons  think  that  greater  secrecy  can  be  main- 
tained than  by  doing  all  their  business  with  one  bank. 

There  is  a  protective  feature  in  many  accounts  which  prevent  banks 
from  losing  by  overdraft ;  we  mean  when  dealers  have  notes  de- 
posited for  collection.  For,  when  paid,  they  are  posted  to  the  credit 
of  their  owner,  and  may  make  up  a  deficit  in  his  account.  Bank 
officers  will  sometimes  admit  temporary  overdrafts  in  anticipation 
of  the  maturity  of  collection  notes;  or,  what  is  better,  make  tran- 
sient loans,  holding  them  as  collateral,  by  which  the  irregularity  of 
overdraft  is  avoided.  The  receiving  teller  takes  no  cognizance  of 
this  source  of  recuperation  unless  he  finds  a  necessity  to  resort 
to  it. 

The  word  "foreign"  is  applied  by  banks  in  New  York  City  to  all 
others.  Most  of  the  banks  located  there  receive,  on  deposit,  indi- 
vidual checks  on  banks  at  a  distance.  Merchants  in  Buffalo,  for  ex- 
ample, remit  their  checks  on  banks  in  that  city  to  their  creditors  in 
New  York,  and  there  they  are  received  as  cash,  perhaps,  deducting 
enough  to  cover  the  exchange  and  the  expense  of  collecting.  They 
may  be  returned  not  good  after  several  days,  and,  in  such  a  case,  the 
depositor  must  promptly  redeem  them.  The  interval  between  their 
deposit  and  their  return  is  long  enough  to  permit  the  dealer  to  close 
his  account  and  leave  the  bank  in  the  lurch.  It  follows  that  the 
receiving  teller  is  practically  discounting  paper  all  the  time. 

Drafts  on   individuals  and  on   private    bankers  in   New  York  are 


THE    RECEIVING    TELLER.  91 

received  on  deposit,  but  this  throws  on  the  bank  receiving  them 
the  trouble  of  collecting  them,  while  rendering  it  responsible  for 
endorsements  in  which  it  has  no  interest.  Dealers,  therefore,  are 
required  to  scrutinize  and  to  collect  them  on  their  own  behalf. 

The  deposit  teller  must  examine  the  bank  notes  received,  lest 
counterfeit  ones  be  taken.  When  the  State  banks  issued  notes  there 
was  such  a  great  variety  of  them  and  they  were  often  so  poorly 
made  that  it  was  an  easy  thing  to  make  counterfeits  and  to  put 
them  into  circulation.  It  has  been  far  more  difficult  to  counter- 
feit the  Government  issues,  and  those  of  the  National  banks. 

There  are  publications  whose  special  function  consists  in  describ- 
ing counterfeits,  and  the  deposit  teller  should  study  constantly 
such  sources  of  information.  "A  man  sent  us  a  bill,"  said  a  cashier 
to  the  writer,  not  long  ago,  "that  had  been  stolen  before  signature. 
Our  clerks  picked  it  out  at  once ;  they  had  been  notified  concern- 
ing it."  The  National  Bank  Act  requires  that  every  National  bank 
officer  receiving  a  counterfeit  or  stolen  bill  shall  cut  it,  or  brand 
it,  or  stamp  it  "counterfeit"  or  "fraudulent,"  as  the  case  may  be- 
With  the  note  in  question  the  cashier  said  he  did  not  wish  to  do 
this,  because  he  might  lose  ten  or  twenty  dollars.  So  he  notified 
the  depositor  that  the  bill  might  be  returned  to  him  and  sent  it  to 
the  Comptroller  of  Currency  at  Washington  for  redemption.  When  it 
came  back  it  was  cut  in  many  places,  and  stamped,  "stolen," 
"stolen;"  "bad,"  "bad."  As  soon  as  received  the  cashier  sent 
it  to  the  depositor,  and  wrote  to  him  that  the  bill  could  not 
be  credited  on  his  account.  He  was  very  angry,  and  said  he  would 
like  to  know  what  conceited  fellow  in  the  department  undertook  to 
say  that  the  bill  was  stolen.  How  could  he  know  that  it  was  ? 
The  cashier  simply  replied  that  the  clerks  had  picked  the  bill  out 
when  it  came  over  the  counter,  that  the  information  was  derived 
from  a  counterfeit  detector,  a  copy  of  which  was  sent  to  him. 

Not  infrequently  a  claim  is  made  by  some  depositor  for  a  larger 
sum  than  that  with  which  he  is  credited.  How  these  differences 
arise  is  often  mysterious.  The  deposit  teller  then  makes  a  general 
and  thorough  revision  of  all  his  figures,  checking  them  off  by  his 
deposit  tickets  and  going  over  his  additions.  If  the  error  cannot 
be  discovered  in  this  way,  he  sends  a  letter  to  each  dealer  whose 
deposit  may  possibly  have  been  erroneously  entered,  and  if  the 
error  still  remains  undiscovered  the  cashier  is  informed,  and  perhaps 
the  directors  at  their  next  meeting.  The  search  is  continued  as  long 
as  there  is  any  chance  of  detecting  their  error. 

Gibbons  says  there  is  a  loose  practice  with  some  banks  with  re- 
spect to  a  deficit  or  excess  of  cash  in  the  daily  accounts  of  their 
tellers.  Small  sums  accrue,  which  are  thrown  together  in  a  box  or 
drawer  and  applied  to  the  payment  of  small  deficits.  These  are 
not  noted  on  the  face  of  the  day's  transactions.  He  objects  to 


92  PRACTICAL    BANKING. 

this  mode  of  conducting  a  banking  business,  and  well  he  may. 
Nothing  short  of  exactitude  should  be  allowed  in  commercial  ac- 
counts, and  especially  in  a  bank.  A  ledger  account  should  be 
opened  with  each  teller,  in  which  any  surplus  should  be  credited 
under  its  actual  date,  or  any  deficiency  charged,  and  this  might  be 
periodically  balanced  by  a  transfer  to  profit  and  loss. 

When  deposits  are  made  the  depositor  sometimes  waits  until 
the  counting  is  finished  ;  on  other  occasions  he  leaves  immediately. 
Some  banks,  though,  require  the  dealer  to  wait  until  his  deposits 
have  been  counted  in  his  presence.  Sometimes  deposits  are  left 
containing  the  dealer's  count  on  them  ;  if  they  are,  when  the  re- 
count is  made,  should  there  be  a  deficiency,  the  depositor  must 
abide  by  the  teller's  count. 

Depositors  have  a  book  in  which  is  written  on  one  side  the  dates 
and  amounts  of  their  deposits,  and  on  the  other  the  amounts  that 
have  been  checked  out  and  the  dates  when  this  was  done.  The 
depositor  presents  this  book  whenever  he  makes  a  deposit,  and  the 
amount  is  written  therein.  It  is  the  general  practice  to  write  up 
these  books  at  varying  intervals  of  a  month  or  more. 

The  receiving  teller  rarely  receives  forged  checks,  as  he  transacts 
business  only  with  the  regular  dealers.  Of  course  a  dealer  may  de- 
termine to  be  a  knave,  and  to  practice  a  fraud  on  a  receiving  teller, 
but  happily  such  cases  are  very  infrequent. 

Toward  the  close  of  the  day  depositors  multiply  in  number. 
"  First  come  first  served "  is  the  rule ;  a  row  is  formed,  and  the 
last  comer  must  take  his  place  at  the  end  farthest  away  from 
the  receiving  teller.  Formerly,  when  the  State  banks  issued  notes, 
and  counterfeiting  was  a  more  general  practice,  the  business  of  as- 
sorting and  counting  bank  notes  was  a  more  difficult  practice  than 
it  is  at  present.  No  assorting  is  done  now  when  notes  are  received. 
The  teller  merely  watches  sharply  for  counterfeits.  Afterward  the 
notes  are  assorted  into  packages  of  various  denominations  without 
regard  to  the  bank  issuing  them.  Such  is  the  perfection  of  the  Na- 
tional bank-note  system,  that  the  note  of  one  bank  is  as  good  as 
that  of  another,  and  hence  there  is  no  occasion  for  noticing  their 
parentage. 

The  checks  on  country  banks  are  handed  over  to  the  correspond- 
ing clerk,  who  lists  them  in  his  letters  and  in  mail  blotters  for 
charge  to  the  appropriate  banks  in  the  collection  ledger,  unless  they 
are  on  dealers  of  their  own  bank.  In  that  case  they  are  often 
charged  directly  to  the  general  account  of  the  dealer. 


THE  NOTE  TELLER.  93 


CHAPTER  XI. 
THE  NOTE  TELLER, 


The  note  teller  receives  the  letters  and  the  money  for  all  prom- 
issory notes  liquidated  at  the  bank.  In  small  banks  his  duties  may 
be  blended  with  those  of  the  receiving  teller.  And  again  the  duties 
of  both  may  be  performed  by  the  paying  teller.  In  other  words, 
one  person  may  perform  the  duties  assigned  in  a  larger  bank  to  the 
three  beside  several  assistants. 

There  are  two  kinds  of  notes.  Those  which  are  discounted  by 
the  bank,  and  those  which  are  deposited  by  the  owners  for  collec- 
tion, and  for  which  they  are  to  receive  credit  when  they  are  paid 
The  former  are  called  bills  discounted,  and  the  latter  collection 
notes. 

In  large  banks  at  the  present  day  the  note  teller  does  not  have 
charge  of  the  notes  until  the  morning  of  the  day  of  maturity.  The 
bills  discounted  are  handed  to  him  early  on  the  morning  of  the 
day  of  their  maturity  by  the  discount  clerk.  They  are  usually 
strapped  together,  and  the  total  amount  of  the  notes  is  stated  in 
pencil  on  the  strap.  When  collected,  this  total  amount  is  credited  to 
"  bills  discounted  "  in  the  general  ledger.  Should  any  of  these  notes 
not  be  paid,  of  course  the  amount  to  be  credited  to  "  Bills  Dis- 
counted "  will  be  just  so  much  diminished. 

The  collection  clerk  each  morning  hands  to  the  note  teller  the 
notes  he  has  maturing,  and  with  a  ticket  for  each  note,  or  with  a 
ticket  for  each  owner  of  notes. 

When  the  notes  are  entered  they  are  arranged  by  the  note  teller 
in  the  order  of  the  names  of  the  payers.  The  note  teller  is  now 
prepared  to  receive  payment  of  the  notes  whenever  debtors  ap- 
pear. The  notes  payable  at  the  bank  are  retained  by  the  teller 
in  his  drawer,  and  those  payable  at  other  points  in  the  city  are 
sent  out  by  messengers  for  presentation. 

The  note  teller  reaches  the  bank  in  time  to  make  the  entries  of 
remittances  by  the  morning's  mail  before  the  institution  is  opened  to 
the  public.  The  following  is  the  usual  form  of  letter  received  now- 
a-days,  with  abbreviations: 


94  PRACTICAL   BANKING. 

DELAWARE  RIVER  BANK, 

Philadelphia,  June,  30,  1884. 
H.  MORSE,  Esq.,  Cashier. 
Dear  Sir: 

Enclosed  find  for  our  credit : 

Peters,  Cashier on  Com $9,400  oo 

Ruffin,        a       //    Am 10,00000 

Luther,       *       //    Am.  Ex 1,57560 

Simpson,    «       »    Met 14,26370 

Corse  &  Co Third  Nat 1,800  oo 

Kerr Phx , 2,740  oo 

$39,779  30 

We  add  for  collection : 

Brown on  Thompson 3  ds $  1.250  oo 

Green Burr  &  Co 10  ds 3,263  20 

Wilson July  10 2,249  75 

White 90  ds 242  90 

Kent Albany July  25 506  oo 

Mother Buffalo Aug.  3.- T,OOO  oo 

Gray  &  Co. Hartford sight 2,600  oo 

Roberts Port 10  ds 1,050  oo 

Yours  truly, 

J.  JONES,  Cashier. 

To  explain  them  fully,  these  items  for  credit  mean  checks  as  fol- 
lows : 
J.  Peters,  Cashier,  Sussex  Bank  of  Milford,  on  N.  Bk.  of  Commerce,  N.  Y.  $9,400  oo 

T.  Ruffin,  Cashier,  Bank  of  Fullerton,  on  Bank  of  America 10,000  oo 

Corse  &  Co.,  Richmond,  Tenn.,  on  Third  National 1,800  oo 

And  so  on. 

The  collection   items  are  drafts  or  notes,  thus: 

A.  Brown  &  Co.,  draft  on  Thompson  Bros,  at  3  days'  sight $  1,250  oo 

P.  Green  &  Sons  on  Burr  &  Co.,  10  days'  sight 3,263  2O 

Wilson  &  Co.,  note  due  July  10 2,249  75 

Kent  Bros.  ( payable  at  Albany )  July  25 506  oo 

Draft  on  Gray  &  Co.,  Hartford,  sight 2,600  oo 

This  letter  is  given  to  the  note  teller,  who  writes  his  initial  as 
his  receipt  for  each  check  that  he  takes  from  it  for  credit  to 
the  remitting  bank.  In  the  same  way,  all  letters  containing  cash 
documents  are  passed  into  his  hands,  and  the  proper  entries  are 
made  from  them.  In  the  Boston  system  of  bookkeeping,  which 
will  soon  be  explained,  the  entries  are  made  from  the  letter  itself. 
The  total  footing  of  the  letter  is  first  posted  in  the  Note  Teller's 
CASH  BOOK,  the  letter  is  then  handed  to  the  bookkeeper  who  again 
posts  the  total  opposite  the  dealer's  name,  and  afterward  the  letter 
is  handed  to  the  corresponding  clerk,  who  brings  all  the  letters  to 
the  cashier  for  examination.  In  many  banks,  the  president  goes 
through  the  letters  received  the  previous  day;  in  other  banks,  the 
president  is  shown  every  unusual  letter.  It  is  important  by  this 
system  to  have  the  letters  footed,  because  the  letter  is  the  original 
entry,  and  every  footing  is  from  the  letter.  The  totals  of  the 


THE    NOTE    TELLER.  95 

• 

letters  are  posted  by  the  note  teller,  and   again   by   the  bookkeeper, 
and  they  compare  the  footings. 

Some  banks  send  notices  of  the  time  when  a  note  falls  due.  For- 
merly this  was  done  more  generally  than  it  is  now.  The  business 
has  become  too  large  for  banks  to  continue  it.  Persons  who  give 
notes  are  supposed  to  know  when  they  become  due,  and  should  be 
prepared  to  pay  them  without  notification.  In  some  cities  the  cus- 
tom seems  to  prevail  of  making  notes  payable  at  any  bank  in 
town.  Especially  is  this  the  case  in  Boston  ;  where  it  prevails  notices 
would  seem  to  be  necessary.  In  New  York  City,  however,  it  is 
customary  for  merchants  and  other  persons  to  make  their  notes  pay- 
able at  a  specific  place,  and  to  have  the  money  there  to  pay  them 
at  maturity. 

When  notes  are  paid,  a  certified  check  may  be  used,  or  money. 
A  teller  should  preserve  the  notices  and  memoranda  of  his  trans- 
actions in  the  order  of  their  occurrence  until  his  cash  is  proved 
at  the  end  of  the  day.  They  may  serve  a  useful  purpose  in 
refreshing  his  memory  or  in  detecting  any  error  that  may  happen. 

When  a  note  is  paid,  the  bank  stamps  thereon  a  notice  like  the 
following: 

"Paid  at  the   Merchants'  Bank." 

Of  course  a  great  many  incidents  and  irregularities  happen  in  con- 
nection with  this  department.  The  persons  who  ought  to  pay  per- 
haps forget  where  the  note  is  payable,  or  when,  or  the  amount. 
Sometimes  the  notice  is  delivered  to  the  wrong  person.  Some  mer- 
chants write  their  notes  payable  at  the  bank  where  they  keep  their 
account. 

After  the  last  payer  is  dismissed  the  note  teller  closes  his  gate 
erases  from  the  Cash  Book  and  DISCOUNT  TICKLER  the  notes  that 
remain  unpaid,  and  delivers  them  to  a  Notary  Public  for  protest, 
except  where  no  endorser  is  to  be  held. 

The  protest  consists  in  presenting  the  note  at  the  place  of  busi- 
ness of  the  drawer,  or  wherever  it  is  made  payable,  and  demanding 
the  money  for  it.  If  this  be  refused  the  note  is  attached  to  a  printed 
legal  form,  containing  the  following  particulars :  First,  a  true  descrip- 
tion of  the  note,  so  as  to  ascertain  its  identity;  second,  an  assertion 
that  it  has  been  duly  presented  to  its  maker,  or  place  of  payment,  at 
maturity,  and  dishonored ;  third,  the  holder,  or  the  person  giving  the 
notice,  looks  to  the  person  to  whom  the  notice  is  given  for  pay- 
ment and  indemnity.  This  statement  is  essential  to  establish  the 
claim  or  the  right  of  the  holder  or  the  party  giving  notice,  for 
otherwise  he  will  not  be  entitled  to  any  payment  from  the  en- 
dorser. It  will  be  sufficient,  indeed,  if  the  notice  sent  necessarily  or 
even  fairly  implies  by  its  terms  that  there  has  been  a  due  present- 
ment and  dishonor  at  the  maturity  of  the  note,  but  mere  notice  of 
the  fact  that  the  note  has  not  been  paid  affords  no  proof  whatever 


96  PRACTICAL    BANKING. 

that  the  note  has  been  presented  in  due  season,  or  even  that  it 
has  been  presented  at  all.  The  note  is  returned  to  the  bank  on 
the  following  day.  The  Notary  sends  notice  of  the  protest  to  all 
the  endorsers  and  to  the  drawer  of  drafts,  which  advises  them  of 
their  liability  for  the  payment  in  case  of  the  continued  default  of 
the  first  debtor.  If  the  notes  should  be  paid  when  presented  by  the 
Notary  he  returns  the  money  to  the  bank  on  the  next  morning, 


THE  DISCOUNT  CLERK.  97 


CHAPTER  XII. 
THE    DISCOUNT    CLERK. 

As  we  have  seen,  the  profits  of  banking  are  composed  of  interest 
OR  money — in  other  words,  of  interest,  discount  and  exchange. 

The  loans  are  called  discounts,  because  the  interest  is  paid  in  ad- 
vance and  deducted  from  the  amount  due  to  the  borrower.  But  if 
a  bank  were  to  deduct  seven  dollars  from  a  hundred  dollar  loan,  pay- 
able a  year  after  date,  the  bank  would  receive  seven  dollars  for 
a  loan  of  only  ninety-three  dollars.  If  the  bank  paid  the  borrower 
$93.46,  this  sum  at  seven  per  cent,  interest  for  a  year  would  amount 
to  a  hundred  dollars,  the  sum  expressed  in  the  note.  Banks  are 
permitted  by  law  to  deduct  interest  in  advance  in  this  manner,  at 
the  rate  prescribed,  without  rendering  themselves  liable  for  usury 
The  difference,  therefore,  between  interest  and  discount  in  bank 
practice  is,  the  former  is  a  sum  of  money  payable  for  the  use  of 
money  at  the  end  of  a  given  term,  while  discount  is  the  money 
reserved  from  another  sum  at  the  beginning  of  the  term  for  which 
it  is  loaned. 

When  a  bank  discounts  a  note  the  interest  is  deducted  at  once, 
and  the  borrower  receives  credit  for  the  balance. 

The  OFFERING  BOOK,  containing  a  record  of  the  notes  offered  for 
discount,  we  have  described  elsewhere.  The  form  of  Offering  Book, 
however,  is  not  the  same  in  all  banks.  Some  dispense  with  the 
balance  column,  and  some  add  another,  showing  the  liquidations  be- 
fore the  next  discount  day.  Some  banks  enter  in  this  book  loans 
already  made  to  the  borrower  so  that  directors  may  have  before 
them,  when  they  meet,  all  the  essential  facts  necessary  to  transact 
their  business  intelligently. 

Accepted  paper  is  now  taken  by  the  discount  clerk,  who  first  ex- 
amines the  notes  for  filling  and  general  character,  and  then  "times" 
each  note,  /.  e.,  writes  in  pencil  on  the  back  the  due  date  of  the 
note.  The  notes  are  then  entered  in  what  is  termed  the  "  DEALERS' 
DISCOUNT  BOOK,"  which  usually  is  ruled  to  permit,  first,  the  maker's 
name,  then  the  endorser's,  the  place  of  payment,  due  date,  and  the 
number  of  days  to  run,  discount,  amount  of  exchange  charged,  and 
net  proceeds.  For  the  latter  amount  there  is  a  separate  column  for 
each  of  the  ledgers,  so  that  all  the  amounts  belonging  to  any  one 


98  PRACTICAL    BANKING. 

ledger  appear  only  in  one  column.  From  this  discount  book  the 
discount  clerk  makes  his  statement,  and  posts  his  ledger,  or  bill 
book,  and  his  Ticklers.  Before  putting  away  the  notes  he  "checks" 
them  back  on  the  "Ticklers."  These  "Ticklers"  are  very  important 
books.  Why  they  have  been  so  called  is  scarcely  known,  but  prob- 
ably from  the  habit  of  ticking  or  checking  off  the  entries.  There 
is  usually  one  tickler  for  each  month  in  the  year,  and  one  or  more 
pages  for  each  day,  with  the  pages  on  the  left  side  reserved  for 
notes  payable  in  the  city,  and  those  on  the  opposite  side  for  notes 
payable  out  of  town.  The  total  footings  of  these  Ticklers  will  pre- 
sent the  total  amount  of  "  Bills  Discounted,"  and  the  proof  of  these 
total  daily  amounts  is  taken  at  least  as  often  as  once  each  month, 
and  proved  with  the  General  Ledger. 

There  are  discount  ledgers,  which  are  opened  in  the  same  manner 
as  personal  ledgers,  but  embrace  the  accounts  only  of  customers  who 
g;et  notes  discounted.  They  contain  a  record  of  every  note  dis- 
counted, the  date  of  discount,  the  endorser  or  security  therefor,  and 
the  time  of  maturity.  They  also  show  the  liability  of  each  cus- 
tomer as  endorser  for  others  on  discounted  paper.  It  is  desirable 
to  keep  this  record  to  guard  against  losses.  If  two  dealers  should 
exchange  notes  or  endorsements  and  put  them  in  the  same  bank, 
these  books  would  bring  the  fact  to  light.  They  are  placed  on  the 
directors'  table  on  discount  days. 

From  these  ledgers  the  discount  clerk  ascertains  the  amount  of 
discounts  set  down  in  the  Offering  Book.  He  keeps  daily  super- 
vision over  them,  cancelling  the  paid  notes  as  fast  as  they  ma- 
ture, by  drawing  a  line  across  the  figures  without  obliterating  the 
record. 

Some  banks  number  their  notes  on  the  back  and  end  with  red 
ink,  and  file  them  in  packets.  A  good  many  banks,  however,  do  not 
number  their  notes,  and  are  careful  not  to  mar  them,  even  by  a  pin 
hole,  so  that  if,  for  any  reason,  they  should  wish  to  dispose  of 
them,  this  could  be  done  without  the  paper  showing  any  indications 
of  having  been  in  the  possession  of  a  bank.  For  the  same  reason 
also,  it  is  not  desirable  for  a  bank  to  have  a  note  made  payable 
to  its  own  order.  When  thus  made,  it  would  appear  on  its  face 
to  be  given  in  liquidation  of  an  obligation  of  the  maker  to  the 
bank.  It  is,  therefore,  desirable  that  notes  be  made  to  the  maker's 
order,  and  endorsed  to  the  bank  if  taken  direct  from  him. 

Notes  are  also  transcribed  on  the  Discount  Ticklers ;  each  note  is 
under  the  date  of  its  maturity,  with  a  number  and  name  of  the 
payer  and  amount.  The  Ticklers,  which,  as  previously  explained, 
are  books  of  monthly  duration,  continue  to  receive  additions  by 
new  discounts  until  within  a  few  days  of  the  transpiring  date. 
They  are  kept  added  in  pencil  until  that  time  and  are  finally  closed 
in  ink. 

In  some  banks    notes   are  filed   without  number.     Those   of  each 


THE    DISCOUNT    CLERK.  99 

day  are  kept  in  a  separate  packet,  and  the  packets  are  arranged  in 
a  consecutive  order  of  dates.  This  plan  is  regarded  more  convenient 
when  there  are  very  many  notes. 

The  discount  clerk  has  the  possession  of  the  greater  part  of 
bills  receivable,  in  which  the  resources  of  the  bank  are  invested. 
These  are  in  his  custody,  are  deposited  by  him  at  night  in  a  com- 
partment of  the  vault  assigned  to  him,  and  taken  out  on  the  next 
morning  by  himself.  If  any  of  the  officers  wish  to  examine  notes 
they  do  so  in  his  presence,  or  require  him  to  show  them.  By  this 
method  his  responsibility  is  kept  distinct  from  that  of  the  other 
clerks  and  officials. 

The  discount  clerk  is  in  frequent  intercourse  with  the  customers 
of  the  bank.  The  offerers  apply  to  him  after  adjournment  to  find 
out  what  disposition  has  been  made  of  their  application.  We  are 
now  speaking  of  the  larger  banks  where  such  a  clerk  is  employed. 
In  a  small  bank  the  cashier  may  transact  the  entire  business  de- 
scribed in  this  chapter.  When  he  appears  at  his  desk  to  answer  the 
questions  of  applicants  on  occasions  when  the  money  market  is 
tight,  his  duty  is  by  no  means  a  pleasant  one.  Customers  press  to- 
ward his  gate  at  the  earliest  moment,  to  ascertain  whether  their 
offerings  "have  been  accepted  or  rejected,  and  the  letters  A  and  R 
enable  him  to  give  a  very  short  answer.  When  notes  are  rejected 
they  are  returned  to  the  offerer  in  the  original  envelope. 

The  discount  clerk,  as  will  be  seen  from  the  foregoing  descrip- 
tion of  his  duties,  does  not  receive  or  pay  out  any  money.  It  is 
not  easy  therefore  for  him  to  perpetrate  a  fraud  on  the  bank.  Gib- 
bons relates  an  instance  which  occurred  in  the  second  Bank  of  the 
United  States.  The  discount  clerk  selected  some  notes  after  they 
had  been  discounted  and  filed  away,  which  he  thought  would  be 
least  likely  to  be  wanted  before  maturity,  and  through  the  help  of 
an  outsider,  hypothecated  them  for  a  loan  of  money.  When  the 
time  of  maturity  drew  near  he  selected  others  of  longer  date,  and 
substituted  them  for  those  first  abstracted,  which  were  restored  to 
their  proper  places  in  the  files.  The  trick  was  discovered  by  the 
maker  of  one  of  the  hypothecated  notes,  who  called  at  the  bank  to 
pay  it  before  maturity. 

Sometimes  a  bank  will  rediscount  a  portion  of  its  notes  with 
other  banks.  It  may  desire  to  get  possession  of  more  funds,  in 
order  to  pay  the  demands  of  depositors,  or  through  fear  of  an  in- 
creased demand.  In  other  words,  the  loans  which  it  may  have 
made  are  transferred  to  another  institution. 

Discounted  notes  payable  in  other  cities  are  transmitted  by  mail, 
and  when  advice  of  their  payment  is  received  a  journal  entry  is 
made,  charging  the  collecting  bank  and  crediting  "  Bills  Discounted " 
in  the  usual  commercial  form.  Discount  notes  which  are  payable 
in  other  cities,  are  transmitted  two  or  three  weeks  previous  to  their 
maturity. 


100  PRACTICAL    BANKING. 


CHAPTER  XIII. 
COLLECTIONS. 

An  immense  number  of  notes  are  given  in  liquidation  of  purchases 
and  other  obligations,  and  which  sooner  or  later  are  delivered  to 
banks  for  collection.  Our  readers  will  understand  from  what  has 
been  already  said,  that  many  of  the  notes  thus  received  by  the  de- 
positors of  a  bank  are  offered  for  discount,  and  the  mode  of  pro- 
cedure with  regard  to  them  has  been  explained.  But  the  remainder 
are  lodged  for  collection,  and  their  future  history  needs  explana- 
tion. 

They  are  first  entered  by  the  collection  clerk  in  the  customers' 
book,  after  careful  examination.  Informality  of  endorsement,  obscur- 
ity of  date,  or  other  accident  might  render  the  bank  liable  to  the 
holder,  although  it  was  acting  merely  as  a  collection  agent.  The 
clerk  must  scrutinize  every  note  carefully  before  entering  it,  and 
must  always  require  the  final  endorsement  of  .the  owner,  so  that 
it  may  not  be  placed  to  the  wrong  credit  when  due.  Banks  gen- 
erally will  not  receive  for  collection  notes  that  have  been  dis- 
figured or  changed  after  issue  by  the  drawer;  nor  will  they  receive 
them  from  strangers  on  any  terms. 

Promissory  notes  are  transferred  by  endorsement  from  one  mer- 
chant to  another  in  settlement  of  debts,  until  the  time  of  their  ma- 
turity, when,  of  course,  they  must  be  presented  for  payment.  There 
are  several  varieties  of  endorsement  which  may  be  briefly  men- 
tioned. An  endorsement  may  be  ( i  )  in  full,  or  ( 2 )  in  blank  ;  it 
may  be  (3)  absolute,  or  (4)  conditional;  it  may  be  (5)  restrictive; 
it  may  be  (6)  without  recourse  on  the  endorser;  and  there  may  be 
(7)  joint  endorsements  of  the  instrument;  (8),  successive  en- 
dorsements, and  ( 9 )  irregular  ones.  An  endorsement  in  full  men- 
tions the  name  of  the  person  in  whose  favor  it  is  made,  and  to- 
whom,  or  to  whose  order,  the  sum  described  in  the  note  is  to  be 
paid.  An  endorsement  in  blank  consists  simply  of  the  name  of  the 
endorser  written  on  the  back  of  the  instrument.  "  The  receiver  of 
a  negotiable  instrument  endorsed  in  blank,  or  any  bona  fide  holder 
of  it,  may  write  over  it  an  endorsement  in  full  to  himself,  or  to 
another,  or  any  contract  consistent  with  the  character  of  an  en- 
dorsement, but  he  could  not  enlarge  the  liability  of  the  endorser 


COLLECTIONS.  IOI 

in  blank  by  writing  over  it  a  waiver  of  any  of  his  rights,  such  as 
demand  and  notice."*  By  an  absolute  endorsement  the  endorser  binds 
timself  to  pay  on  no  other  condition  than  the  failure  of  the  prior 
parties  to  do  so,  and  of  due  notice  to  him  of  their  failure,  while 
a  conditional  endorsement  contains  some  other  condition  to  the  en- 
dorser's liability.  An  endorsement  may  be  so  worded  as  to  restrict 
the  further  negotiability  of  the  instrument;  it  is  then  called  a  re- 
strictive endorsement.  The  words  "  for  collection,"  which  are  fre- 
quently written  on  notes  that  are  put  in  a  bank  to  be  collected, 
render  the  endorsement  restrictive.  The  endorser  in  such  a  case 
may  prove  that  he  is  not  the  owner  of  the  note,  and  did  not  mean 
to  give  a  title  to  it  or  its  proceeds  when  collected.  Such  an  en- 
dorsement merely  makes  the  endorsee  agent  for  the  endorser  in  col- 
lecting the  note.  The  sixth  kind  is  a  qualified  endorsement,  or 
endorsement  without  recourse.  This  consists  in  writing  the  words 
"  without  recourse,"  or  "  at  the  endorsee's  own  risk "  on  the 
back  of  the  note.  The  endorser  is  then  a  mere  assignor  of  the  title 
to  the  note,  and  is  relieved  of  all  responsibility  for  its  payment.  A 
joint  endorsement  is  made  when  a  note  is  payable  to  several  per- 
sons who  are  not  partners.  Successive  endorsements  are  those  made 
by  several  persons  on  a  note,  the  legal  effect  of  which  is  to  subject 
them  as  to  each  other  in  the  order  they  endorse.  The  endorsement 
imparts  a  several  and  successive,  and  not  a  joint  obligation. 
Lastly  may  be  mentioned  irregular  endorsements,  which  may  originate 
in  various  ways.  But  in  all  cases  an  endorser  guarantees  the  gen- 
uineness of  all  the  preceding  endorsements. 

The  clerk  marks  on  each  note  the  date  of  its  maturity.  If  he 
should  mark  it  one  day  too  late,  and  the  drawer  should  fail  to 
pay,  the  bank  would  be  liable  to  the  owner,  because  the  notice  of 
the  protest  to  the  endorsers  would  be  too  late  to  hold  them.  A 
careful  clerk  will  revise  his  "  timing "  of  notes  so  as  to  guard  against 
any  error  of  this  kind. 

Dishonest  customers  have  been  known  to  mark  a  wrong  date  of 
maturity  on  notes  for  the  purpose  of  "  catching  "  the  bank ;  in  other 
words,  of  making  it  liable.  The  bank  could  not  escape  by  showing 
that  the  wrong  date  was  the  customer's,  without  proving  that  he 
intended  to  render  the  bank  liable.  It  must  be  exact  in  its  own 
business,  and  cannot  escape  by  showing  that  it  adopted  the  errors 
of  others. 

After  the  notes  have  been  "timed,"  they  are  numbered  on  the 
back  and  end,  and  recorded  in  the  COLLECTION  REGISTER.  From 
this  book  the  notes  are  copied  into  the  Ticklers. 

Notes  should  be  deposited  ten  days  or  longer  before  maturity,  so 
that  there  may  be  time  enough  to  pass  them  through  the  several 

*  Daniel  on  Negotiable  Instruments,  §  694. 


102  PRACTICAL    BANKING. 

books  in  the  bank,  and  to  serve  notices  on  the  payers,  though 
this  practice,  as  we  have  already  remarked,  is  not  so  general  as  it 
once  was.  Merchants,  however,  are  constantly  receiving  short-time 
drafts,  and  these  cannot  be  deposited  long  before  the  time  of  pay- 
ment. Other  circumstances  often  prevent  their  deposit  until  very 
near  the  time  of  maturity,  for  example,  the  pledging  of  them  to 
secure  loans. 

The  clerk  of  this  department  is  responsible  for  the  safe  keeping 
and  production  at  all  times  of  any  note  or  draft  deposited  in  the 
bank.  If  payable  in  the  city  where  the  bank  is  located,  he  can 
produce  it ;  if  sent  elsewhere  for  collection  he  can  show  what  he  has 
done  with  it. 

Notes  or  drafts  which  are  payable  in  another  place  are  in  some 
banks  recorded  in  a  FOREIGN  COLLECTION  REGISTER.  In  those  doing 
a  smaller  business  the  regular  Collection  Register  may  be  made  to 
suffice  by  a  special  column  ruling.  In  the  Foreign  Collection  Reg- 
ister are  recorded  the  place  of  payment,  and  the  name  of  the  cor- 
respondent to  whom  the  paper  is  sent  for  collection,  with  the  date 
of  its  transmission.  In  a  small  bank  a  column  is  provided  in 
which  to  record  the  fact  and  date  of  payment,  or  of  return  if  un- 
paid. In  other  small  banks,  the  Foreign  Collection  Register  may 
contain  the  only  record  of  such  paper,  obviating  entries  against  the 
collecting  bank,  until  payment  is  advised. 

It  is  the  practice  of  many  banks  to  make  their  collections 
for  a  district  or  county  through  one  bank  which  has  estab- 
lished correspondence  with  all  parts  of  it.  But  the  large  banks 
desire  so  far  as  possible  to  make  their  collections  direct.  Their 
notes  are  then  presented  more  promptly,  returns  are  received  more 
quickly,  and  country  business  is  cultivated  more  successfully  by  thus 
having  reciprocal  accounts. 

When  a  bank  is  employed  by  another  to  collect  notes  within  a 
particular  district,  the  clerk  opens  another  book  and  records  on  the 
page  appropriated  to  the  National  Bank  of  Albany,  for  example,  all 
notes  that  fall  within  the  circuit  allotted  to  it.  He  stamps  or 
writes  on  the  back  of  each  note  below  the  other  endorsements, 

"Pay  National  Bank  of  Albany,  Albany,  N.  Y., 

on  order,  for  collection  for  account  of 

Arctic    National   Bank,    N.   Y. 

THOMAS  JONES,  Cashier" 

After  the  letter  enclosing  the  notes  has  been  copied  it  is  sent  by 
mail  to  the  collecting  bank. 

When  drafts  or  notes  for  collection  are  payable  at  places  where 
the  bank  has  no  regular  dealer,  they  are  sent  to  a  bank  in  such 
place  "for  collection  and  remittance."  If  there  is  no  bank  or 
banker  of  established  credit  there,  the  collection  would  not  be  re- 


COLLECTIONS.  103 

ceived.  When  the  note  or  draft  is  paid,  the  collecting  bank  remits 
at  once  a  check  for  the  amount,  less  the  charge  for  exchange,  if 
any.  The  check  will  be  on  a  bank  either  in  a  city  from  whence 
the  collection  has  come,  or  on  such  other  point  as  instructed  by 
the  bank  owning  the  paper.  The  bulk  of  checks  remitted  for  col- 
lections are  drawn  on  New  York,  and  many  on  Boston  or  Phila- 
delphia. Such  collections  are  desirable  at  points  where  a  surplus 
of  exchange  is  created,  as  they  afford  a  means  of  working  it  off  at 
a  small  profit. 
The  usual  form  of  letter  transmitting  collections  is  as  follows: 

BUCKEYE  BANK,  DAYTON,  O. 

July  5,  1884. 

E.  SIMPSON,  Esq.,  Cashier, 
Tuscaloosa,  Iowa. 

Dear  Sir: — We  enclose  for  collection  and  remittance, 

O.  Kane  on  Smithers  &  Co.,   sight $750. 

Patterson  &  Brown Aug.  20 $  1,000  &  exchange. 

Yours  respectfully, 

F.  BANDERS,  Cashier. 


104  PRACTICAL   BANKING, 


CHAPTER    XIV. 
THE    BOOKKEEPER. 

Mathematical  accuracy  is  one  of  the  prime  virtues  of  an  account- 
ant. It  is  nowhere  more  important  than  in  bank  bookkeeping. 
While  the  affairs  of  a  bank  are  running  along  smoothly  its  cus- 
tomers are  given  little  opportunity  to  judge  of  the  capability  and 
thoroughness  of  those  who  manipulate  the  books  of  account.  But 
when  the  institution  comes  to  grief,  and  the  creditors  are  waiting 
in  painful  suspense  to  learn  the  fate  of  their  deposits,  the  opportu- 
nities for  determining  how  well  the  books  have  been  handled  are 
excellent.  It  is  at  such  times  that  the  public  are  taught  to  appre- 
ciate the  value  of  accuracy,  system  and  promptness.  When  it  re- 
quires days,  and,  as  is  sometimes  the  case,  weeks,  for  the  book- 
keepers to  make  up  a  statement  of  the  condition  of  a  suspended 
bank,  the  inference  may  be  fairly  taken  that  something  is  radically 
wrong.  It  may  be  the  imperfections  of  the  system  in  vogue,  or 
possibly  a  weakness  in  the  brain  of  the  bookkeeper. 

A  good  theory  to  follow  in  bank  bookkeeping  is  one  which  each 
day  presumes  that  the  bank  is  to  suspend  payment  before  time  for 
the  doors  to  open  the  next  morning.  And  not  only  so,  but  also  one 
which  presumes  that  the  directors  or  proprietors  are  to  require  a  com- 
plete financial  exhibit  of  the  bank's  affairs  within  twenty-four  hours 
from  the  time  the  suspension  is  announced.  There  can  be  no  good 
reason  why  a  complete  statement  should  not  be  presented  within 
a  few  hours  at  any  time,  if  no  crookedness  has  been  practiced.  It 
is  not  only  important  that  the  work  of  each  day  should  be  finished 
before  the  doors  open  on  the  morning  of  the  day  following,  but 
that  the  work  should  be  so  performed  as  to  enable  the  bookkeepers 
to  make  up  a  full  exhibit  without  delay.  Even  in  cases  of  defalca- 
tion and  crookedness  on  the  part  of  any  one  individual  where  sev- 
eral officers  and  clerks  are  employed,  there  would  be  no  reasonable 
excuse  for  requiring  days,  and  often  weeks,  in  preparing  statements 
for  the  public.  Simplicity  in  method  and  an  efficient  clerical  force 
will  obviate  the  present  prevailing  difficulties. 

It  is  not  good  economy  for  the  manager  of  a  bank  to  expect  one 
clerk  or  bookkeeper  to  perform  the  labor  of  two.  There  can 
be  as  much  of  a  mistake  in  employing  not  enough  as  too 
many.  But,  before  considering  the  number  to  be  employed, 


THE   BOOKKEEPER.  10$ 

the  fitness  of  each  for  the  position  should  receive  attention.  Above 
all  things,  know  that  each  and  every  person  doing  clerical  work  in 
a  bank  is  thoroughly  qualified.  Then  see  that  the  force  is  sufficient 
to  have  the  work  kept  closely  up,  and  require  in  all  cases  that  no 
part  is  neglected.  We  would  say  to  the  bookkeeper  of  a  bank : 
Demand  that  you  be  allowed  a  sufficient  force  to  do  the  work  punc- 
tually and  in  the  best  manner.  If  your  request  is  refused  it  is  bet- 
ter to  resign  than  take  chances  in  doing  your  duty  when  you  know 
that  important  parts  must  be  neglected.  Banks  show,  as  a  rule, 
more  wisdom  in  this  respect  than  commercial  houses.  Yet  there 
are  but  few  banks  in  which  an  improvement  might  not  be  made  by 
an  addition  to  the  regular  force.  This  improvement  would  redound 
to  the  advantage  of  stockholders  as  well  as  the  bank's  customers. 

The  method  of  bookkeeping  practiced  in  a  bank  may  have  much 
to  do  with  the  force  necessary  for  performing  the  work  properly. 
We  cannot  undertake  in  this  treatise  to  go  into  the  details  of  all  the 
different  systems  in  vogue.  It  is  our  aim,  however,  to  give  such  ex- 
planations of  the  methods  in  most  general  use  as  will  enable  the 
reader  to  understand  the  principles  and  be  able  to  choose  a  plan 
best  adapted  to  his  special  needs.  Important  changes  and  improve- 
ments in  bank  as  well  as  commercial  bookkeeping  have  taken  place 
within  the  past  ten  or  fifteen  years.  A  few  years  ago  banks  re- 
ceived a  fair  revenue  from  the  sale  of  exchange.  Remittances  from 
one  part  of  the  country  to  another  are  still  made  almost  entirely  by 
means  of  bank  drafts,  but  since  the  establishment  of  a  currency 
which  is  at  par  throughout  the  United  States,  the  rate  of  exchange 
cannot  much  exceed  the  cost  of  transmitting  money  by  express,  and 
the  business  of  dealing  in  exchange  by  banks  is  no  longer  consid- 
ered an  important  item  of  revenue.  The  change  has  had  its  influ- 
ence upon  bank  bookkeeping. 

The  tendency  has  been,  in  bank  bookkeeping,  to  abridge  the  work. 
There  is  still  room  for  improvement  in  many  institutions  in  this  di- 
rection. It  is  a  good  idea,  in  all  places  where  possible,  to  avoid  re- 
writing items  and  amounts.  We  will  first  turn  our  attention  to 

ACCOUNTS  OF  DEPOSITORS. 

The  depositors'  accounts,  in  an  institution  doing  a  general  bank- 
ing business,  absorb  much  the  greatest  attention  of  the  book- 
keepers. Eternal  vigilance  is  a  prime  virtue  in  their  manipulation. 
Considering  their  numbers,  the  infinite  multiplicity  of  items  they 
represent,  and  the  vast  sums  received  and  disbursed  upon  them, 
the  small  number  of  mistakes  made  in  their  keeping  is  worthy  of 
consideration.  It  demonstrates  the  possibility  of  wonderful  accu- 
racy. The  errors,  at  least  those  discovered,  will  not  average  one  in 
a  thousand  transactions. 

There  is,  perhaps,  an  unusual  degree  of  accuracy  exhibited  in  the 
work  upon  this  class  of  accounts.  The  reason  is  obvious.  An 
error,  no  matter  how  slight,  is  almost  certain  to  be  discovered  by 


io6 


PRACTICAL   BANKING. 


the  depositor.  Whether  or  not  the  error  is  reported  to  the  bank  of- 
ficials, such  a  discovery  is  painful  to  the  bookkeeper.  It  forms  a 
basis  for  suspecting  other  blunders ;  it  may,  too,  involve  serious 
difficulty.  These  are  some  of  the  penalties  constantly  in  view,  and 
they,  no  doubt,  exert  an  influence. 

In  all  branches  of  an  accountant's  work  the  probability  that  an 
error,  if  made,  will  be  discovered  by  some  one  other  than  himself 
will  invariably  cause  some  weight  upon  vigilance  and  thoughtfulness. 
Where  an  error,  if  made,  will  be  detected  by  its  author,  as  is  the 
case  in  some  parts  of  the  bookkeeper's  work,  and  may  be  corrected 
before  reaching  others'  eyes,  a  feeling  of  indifference  is  more  apt 
to  manifest  itself.  This  suggests  the  importance  of  rotating  the 
force  employed  ^.in  large  banks,  so  that  the  work  of  each  one  will 
be  examined  b'y  'some  one  of  the  other  employees.  In  England  it 
is  almost  the  universal  practice  to  have  a  professional  accountant 
go  over,  at  stated  periods,  all  the  work  of  a  bank.  The  plan  is 
not  much  followed  in  this  country,  but  it  is  being  discussed  in 
many  quarters.  Experience  has  shown  that  the  examinations  made 
by  Government  officials  are  not  a  sufficient  guarantee  to  stock- 
holders and  depositors  that  the  published  exhibits  are  faithful  show- 
ings of  the  banks'  condition. 

One  cause  that  has  had  a  tendency  to  bring  about  a  high  stand- 
ard of  accuracy  in  the  treatment  of  depositors'  accounts  is  that  of 
special  study  in  this  direction.  Much  attention  and  skill  have  been 
directed  to  devising  plans  for  keeping  this  class  of  accounts.  We 
will  presently  illustrate  some  of  these  inventions.  But  let  us  first 
consider  the  elementary  functions  of  a  depositor's  account. 

THE    DEPOSIT    SLIP. 

In  the  tenth  chapter 
of  this  work  are  de- 
scribed the  duties  of  the 
receiving  teller.  De- 
positors come  oftener  in 
contact  with  the  receiv- 
ing teller  than  with  any 
other  employee.  It  is 
this  teller  who  receives 
the  deposits.  On  page 
92  appears  a  brief  de- 
scription of  the  deposi- 
tor's pass-book.  When 
making  a  deposit  the  de- 
positor fills  out  a  print- 
ed blank,  upon  which  he 
writes  his  name  and  a  de- 
scription of  items  mak- 
ing up  his  deposit,  thus": 


Deposited  by 

George  Washington 

IN  THE 

NATIONAL  BANK  OF  VALLEY  FORGE. 

PHILADELPHIA,  July  4,  1886. 

Dollars. 

Cents. 

Bills  

6«;o 

Checks  

7IO 

280 

40 

725 

50 

1,965 

9° 

. 


THE   BOOKKEEPER. 


107 

This  "  Deposit  Slip,"  with  the  funds  to  be  deposited  and  {he  de- 
positor's pass-book,  are  handed  to  the  receiving  teller.  The  bills  are 
counted  and  the  items  examined  and  checked  off  by  the  teller,  who 
charges  the  bank  in  the  depositor's  pass-book  with  the  full  amount 
of  the  deposit,  and  files  the  slip  ready  for  the  bookkeeper.  These 
slips  are  the  bank's  vouchers  for  the  transaction. 

THE  DEPOSITOR'S  PASS-BOOK. 

The  depositor's  pass-book  is  a  small  account  book.  Upon  the 
left-hand  page,  or  debit  side,  the  deposits  are  entered ;  the  right- 
hand,  or  credit  pages  are  used  to  enter  up  the  checks  of  the  de- 
positor. It  is  the  bookkeeper's  duty  to  write  up  and  balance  the 
depositor's  pass-book  when  left  at  the  bank  for  that  purpose.  The 
depositor's  account  in  the  bank's  ledger  furnishes  the  data  for 
writing  up  the  pass-book.  In  the  ledger  account,  however,  the  de- 
posits which,  in  the  pass-book,  appear  on  the  debit  side  are  entered 
on  the  credit  side.  The  checks  are  entered  on  the  debit  side  of 
the  ledger  account.  The  reason  of  this  transposition  is,  that  the 


THE  ARCTIC  NATIONAL  BANK  in  Account 
Dr. 


with  RICHARD  WHITTINGTON. 
Cr. 


Jan.  2  

3-.... 
4  

E.K  
J.C  
E.K  

10,000 

400 

2,000 

1,324  05 

208  40 

17520 
96050 
2,100 

ICO 

4675 
ID  50 

12  Vouchers 
returned. 

Balance.  ..... 

13710 
5,42050 

30510 

1,240  80 
77y  zo 

12,400 

12,40000 

Jan.  «;.  .  . 

371  10 

The  letters  opposite  the  dates  on  the  debit  page  are  the  initials  of  the  teller  who 
received  the  deposit.  On  the  credit  page  are  several  columns  in  which  the  amount* 
of  the  checks  or  vouchers  are  entered.  These  checks  are  returned  with  the  pass- 
book to  the  depositor.  The  balance,  after  having  been  added  to  the  footings  of 
the  checks,  is  carried  to  the  debit  of  the  account  preparatory  to  continuing  the 
transactions. 

pass-book  represents    the  depositor's   account   with   the  bank,   while 
the  bank's  ledger  shows  the  bank's  account  with  the  depositor. 

DEPOSITORS'  LEDGERS. 

The  postings  to  the  depositors'  accounts  are  sometimes  made  di- 
rect from  the  deposit  slips  on  the  one  side,  and  from  the  checks  on- 


io8 


PRACTICAL  BANKING. 
FORM  OF  DEPOSITORS'  LEDGER. 

Brown  &*  Bacon. 


Jan.  2.... 

Dep  
Col.  

500 
842  as 

John  Adams. 

Jan.  a  

C'ks  

423  10 

Jan.  a.... 

CoL  

500 

Henry  Smith. 

Jan.  2  

C'ks  

312  So 

Jan.  a.... 

Dep.  

350 

C.  C.  Brown. 

Jan.  2.... 

Dep  

1350 

^ 

THE   BOOKKEEPER. 


109 


the  Other.  The  checks  and  slips,  when  thus  posted,  are  first  en- 
tered in  a  journal  or  register  for  the  purpose  of  proving  the  cash 
and  accounting  with  the  tellers.  This  journal  or  register  forms  a 
part  of  the  general  books  of  the  bank.  The  ledgers  containing  the 
depositors'  accounts  are  auxiliary  to  the  general  books.  We  mean 
by  this  that  a  statement  of  the  bank's  condition  is  made  up  inde- 
pendently of  the  depositors'  ledgers.  One  account  in  the  general 
ledger  serves  to  show  the  liability  of  the  bank  to  its  depositors. 
In  some  banks  the  postings  to  the  depositors'  accounts  are  made 
from  other  books,  usually  called  "journals."  In  some  systems  two 
journals  are  used,  and  in  others  only  one.  We  give,  in  this  connec- 
tion, some  illustrations  of  these  journals.  Though  still  used  to 
some  extent,  the  forms  shown  under  the  title  of  "debit  journal" 
and  "credit  journal"  have  been  mostly  superseded  by  more  modern 
devices.  The  form  under  the  title  of  "  deposit  journal "  is  used  by 
many  country  banks.  It  is  simple,  and  well  serves  the  purpose  for 
which  it  is  intended. 

DEPOSITORS'  LEDGER  WITH  BALANCE  COLUMN. — FORM  2. 

Richard  Whittington. 


Jan  2 

Deposit            

IO  OOO 

a  

100,4675,  1050,305  10.... 
Deo 

46235 

400 

9.537  65 

2IOO.  137  IO.          ....               .  . 

4  6l'l  60 

c  -J24.  o^ 

2o8  40    . 

6  QS2  Q<? 

*I  628  QO 

The  first  column  contains  the  debits  or  checks,  the  second  column  the  credits  or 
deposits,  and  the  third  column  the  balances.  The  balances  are  carried  out  every 
day  after  the  deposits  and  checks  have  been  entered  up. 

In  the  large  city  banks  where  the  depositors  are  so  numerous  as 
to  require  a  classification  of  the  accounts,  several  books  are  kept 
for  summarizing  the  checks  and  deposits.  The  depositors'  accounts 
are  grouped  thus :  Names  commencing  with  A  to  D,  E  to  K,  L  to 
R,  and  S  to  Z.  The  checks  and  deposit  slips  are  assorted  so  as  to 
be  entered  up  under  the  several  classes  or  groups  in  separate 

*  This  balance  is  printed  here  in  italics  to  represent  an  overdraft.  In  practice  it  would 
be  written  in  red  ink. 


110 


PRACTICAL    BANKING. 


journals  or  registers.  The  work  of  writing  up  must  be  commenced 
in  ample  time  for  entering  the  last  check  paid  and  the  last  check 
deposited  almost  immediately  after  the  tellers  close  their  windows. 

DEPOSITORS'  LEDGER  WITH  DOUBLE  BALANCE  COLUMNS. — FORM  3. 

Richard  IVhittington. 


.162  7? 

70S  IO  IO  SO  46  7$  IOO 

1/2 

CO  OOO 

O  ^7  6^ 

1628  QO 

4.613  60 
6  Oe?2  OS 

2100,  137  10,  960  50,  175  20,  1240  80. 

208  40,  1^24  05,  5420  so.  .  . 

3 

400 

5.324  05 

> 

This  represents  a  Depositors'  Ledger  with  two  debit  and  two  credit  columns ;  one 
column  for  itemized  checks  and  one  column  for  dates.  The  first  column  on  the 
left  shows  the  debits'  balance  or  overdraft ;  the  second  column  the  totals  of  checks ; 
the  third,  itemized  checks  and  other  explanatory  remarks ;  the  fourth,  the  dates ; 
fifth,  credits  or  deposits ;  and  sixth,  credit  balances. 

In  the  work  of  writing  up  there  is  precaution  taken  to  leave  suffi- 
cient space  after  the  name  has  been  once  entered  to  add  subsequent 
checks.  This  does  not  apply  so  much  to  deposits,  as  cases  of  more 
than  one  deposit  to  a  name  in  a  day  are  exceptional. 

Form  4,  or  what  is  commonly  known  as  the  Boston  method, 
possesses  some  advantages  which  have  influenced  its  adoption  in 
many  places.  It  is  intended  to  serve  as  a  day-book  and  ledger  com- 
bined. The  asset  balances  are  entered  in  red,  and  the  liability  bal- 
ances in  black  ink.  In  our  illustration  we  give  a  page,  or  portion 
of  a  page,  showing  the  closing  entries  for  two  days.  It  will  be 
seen  that  the  depositors'  accounts  run  horizontally  across  the  page 
(two  accounts  occupying  a  compartment).  First  comes  the  balance 
brought  forward  from  the  page  where  the  name  previously  appeared. 
Then  there  are  two  narrow  columns  under  the  heading  "  Checks  in 
detail."  The  first  of  these  columns  belongs  to  the  second  account 
in  the  compartment,  and  the  second  column  to  first  account  in  the 
compartment.  The  next  two  columns  are  for  the  totals  of  checks 
and  deposits.  The  sixth  column  is  a  space  for  explanations  upon 
the  deposits  or  other  credits.  The  seventh  column  contains  the 


DEPOSITORS'  DAILY    BALANCE   BOOK. 


Ill 


« 


ii 


1 


J_JI 


.5" 


ki 


'CP 


tfoO 

2.ts-o 


^ 


i     i 


I  i 


£*•$• 


1* 


^ 


-jig 


\> 


for  additional  explanation,  see  page 


112  PRACTICAL    BANKING. 

balance  at  the  close  of  the  day.  Following  this,  still  to  the  right, 
the  same  is  repeated  under  another  day.  A  page  nineteen  inches 
in  width  will  give  space  for  three  days'  transactions.  Running 
across  both  pages  of  the  book,  six  days'  business  is  recorded  be- 
fore the  name  is  re-written.  The  object  of  dividing  the  page  into 
compartments  with  horizontal  lines,  and  placing  only  two  accounts 
in  one  compartment,  is  to  aid  the  eye  in  its  sighting  across  the 
page  from  the  side  where  the  name  is  written. 

In  footing  the  balance  columns  the  overdrafts  are  deducted,  mak- 
ing the  footing  show,  not  the  total  liability  of  the  bank  for  de- 
posits, but  the  "net  total  deposits."  This  is  one  of  the  objections 
to  be  urged  against  the  system.  The  overdrafts  of  depositors  are  as- 
sets. They  may  be  serviceable  in  paying  depositors,  and  they  may 
not ;  they  are  certainly  not  as  reliable  as  money  in  the  vault.  And, 
besides,  a  statement  of  a  bank  for  the  benefit  of  stockholders  ought 
to  show  the  total  deposits  and  the  aggregate  of  overdrafts  as  two 
separate  items. 

After  footing  the  balance  and  total  columns  of  the  depositors' 
accounts  for  the  day,  a  general  statement  may  be  written  up  by 
adding  capital  stock  and  other  general  accounts,  if  not  too  numer- 
ous. The  column  entitled  "  Total  checks  "  may,  in  entering  the  im- 
personal or  general  accounts,  be  used  for  all  cash  disbursed.  The 
"  Total  deposits  "  column  may  contain  all  cash  receipts ;  in  this  way 
the  balance  book  will  serve  to  take  the  place  of  a  general  ledger. 

One  advantage  of  this  method  which  recommends  it  is  the  easier 
locating  of  errors.  Each  page  is  susceptible  of  proof  in  itself,  and 
thus  an  error  may  easily  be  pinned  down  to  a  small  number  of  en- 
tries. 

DEPOSITORS'  BALANCE  LEDGER. 

The  illustration  presented  under  the  title  "Depositors'  Balance 
Ledger"  represents  a  portion  of  a  page  of  a  book  extensively  used 
by  the  large  banking  institutions  of  New  York,  and  in  some  other 
cities.  Practically  speaking,  it  is  a  skeleton  ledger,  kept  for  the  con- 
venience of  the  paying  teller.  During  banking  hours  it  is  never  far 
from  his  counter,  and  the  standing  of  any  depositor's  account  can  be 
ascertained  in  a  few  seconds  at  any  time.  This  book  has  no  connec- 
tion with  the  depositors'  ledger  kept  by  the  individual  bookkeeper. 

In  the  Boston  method  the  daily  balance  book  is  the  only  ledger 
used  for  keeping  the  depositors'  accounts.  Thus,  it  will  be  seen  that 
the  two  books  have  a  widely  different  purpose.  In  many  banks 
where  the  balance  ledger  is  used  the  regular  accounts  of  the  de- 
positors are  kept  by  the  individual  bookkeeper,  or  bookkeepers  (for 
there  may  be  several  of  them),  in  ledgers  of  the  usual  form. 

A  complete  explanation  of  the  skeleton  ledger  is  difficult  in  a  small 
treatise  which  will  not  permit  the  introduction  of  ruled  forms 
showing  different  colored  inks.  A  page  about  eighteen  inches  square 


THE   BOOKKEEPER. 


will  give  space  for  thirty  accounts  six  days.  The  two  pages  of 
such  a  book  will  serve  thirty  accounts  thirteen  days.  Two  writings 
of  an  account  will  thus  carry  it  through  a  month.  The  lines  upon 
which  the  names  are  written  are  about  five-eighths  of  an  inch 
apart,  and  they  alternate  in  color,  first  blue  and  then  red.  The 
change  of  color  serves  to  guide  the  eye  correctly  across  the  page, 
or  the  two  pages.  For  each  day  there  is  a  pair  of  columns,  the 

DEPOSITOR'S  BALANCE  LEDGER. — FORM  5. 


Names. 

A 

Ug.   I. 

A 

Ug.  2. 

A 

ug-3- 

Aug. 

N.Y.  Tribune  Ass'n. 

210  40 
3l8   60 

18400  10 
1415  60 

1540 
835  iS 

19^59  *0 
1410 

18194  05 

R.  Wells 

I2IO 

4.2OO 

184.0 

2dOZ 

•zee   CQ 

1840 

460 

375 

25O 

270  50 
650 

350 

70  10 

'& 

P.  White  

5  80  to 

1840  50 

JOJO 

250 

375 

5*o  50 

22600  10 

22674  20 

355  50 

19579  f>5 

first,  or  left-hand  column,  being  for  debits  or  checks,  and  the  sec- 
ond, or  right-hand  column,  for  credits  or  deposits;  the  balances  are 
carried  forward  in  pencil.  The  calculation  in  carrying  the  balances 
forward  is  done  mentally.  It  would  be  surprising  to  one  not  ex- 
pert in  this  work  to  observe  the  rapidity  with  which  the  book- 
keeper performs  these  mental  calculations.  With  three  amounts  on 
one  side  and  two  on  the  other,  the  items  ranging  in  value  from  the 
units  column  to  several  thousand,  the  calculation  is  performed  men- 
tally, the  balance  struck  without  a  moment's  hesitation,  and  placed 
in  its  proper  column  for  the  next  day.  For  example,  the  following 
represents  a  day's  transactions : 


Debit. 

Credit. 

7,462  25 
35  60 

12,620  39 

379  84 

284  60 

414  PRACTICAL    BANKING. 

The  balance,  5,027.30,  is  dotted  down  with  surprising  rapidity.  In 
footing  the  columns  the  pencil  figures  only  are  taken  to  get  the 
total  balances.  The  amounts  in  ink,  when  footed,  show  total  drafts 
and  total  deposits  for  the  day. 

The  plan  followed  by  which  the  entries  find  their  way  from  the 
tellers'  counters  and  the  exchanges,  to  the  depositors'  ledger  and 
balance  book,  varies  in  different  banks.  The  volume  of  business 
has  much  to  do  with  the  system  in  use.  It  is  well  worth  the 
space  here  to  give  a  description  of  the  plan  in  vogue  in  the  Na- 
tional Park  Bank.  This  bank  is  a  representative  institution  with 
•over  ten  thousand  active  accounts  on  its  depositors'  ledgers.  There 
are  two  receiving  tellers.  A  depositor  presents  his  book  with  de- 
posit enclosed.  If  currency  or  specie  form  a  part,  it  is  counted 
and  dropped  into  the  till  or  money  drawer.  The  checks  and  other 
items  are  not  carefully  examined.  If  the  currency  and  coin  are 
correct,  the  amount  according  to  the  deposit  slip  is  entered  in  the 
pass-book.  The  deposit  slip,  the  checks,  drafts,  or  other  items  are 
kept  together  until  a  checking  clerk  takes  them  away.  These  items 
of  the  deposit  slip  are  then  carefully  examined  and  re-checked  upon 
the  deposit  slip.  If  an  error  is  discovered  the  correction  is  made 
upon  the  slip.  The  checks,  drafts,  etc.,  are  now  classified  and 
passed  over  to  other  clerks.  Some  go  to  clerks  who  enter  them 
up  ready  for  passing  through  the  Clearing-house.  Others  must  be 
sent  out  for  collection  by  the  bank's  messenger.  The  checks  of  the 
bank's  own  depositors  and  correspondents  go  to  clerks  who  enter 
them  up  preparatory  for  the  bookkeepers.  This  is  followed  up  so 
closely  that,  at  the  hour  for  closing  the  receiving  teller's  window, 
every  check,  draft  and  other  item  of  the  day  has  been  charged  up 
at  the  checking  counter.  The  items  in  the  balance  ledgers  are 
taken  from  the  books  kept  up  by  the  checking  clerks,  and  the  in- 
dividual bookkeepers  also  make  up  their  ledgers  from  the  books 
kept  on  the  checking  counter. 

There  are  four  sources  from  which  the  balance  ledger  book- 
keepers obtain  the  items  of  debits  to  the  accounts  in  their  charge. 
These  are — first,  through  the  Clearing-house;  second,  through  the 
paying  teller's  department;  third,  from  the  receiving  teller's  depart- 
ment ;  and,  fourth,  through  the  note  teller's  department.  They 
have  been  classified  and  entered  up  at  the  checking  counter,  so  that 
he  has  only  to  write  down  the  totals.  There  are  some  institutions 
having  accounts  with  the  Park  Bank  which  draw  as  many  as  forty 
checks  in  a  day;  many  draw  twenty  to  thirty.  This  will  explain 
why  a  method  like  that  described  in  connection  with  the  Boston 
daily  balance  book  would  not  be  practicable  in  all  places. 

In  this  bank  the  accounts  of  depositors  or  dealers  are  divided 
into  four  classes,  and  are  kept  by  eight  individual  bookkeepers — 


THE   BOOKKEEPER. 


1*5 


ir  of  whom  are  on  depositors'  ledgers  and  four  on   the  balance 
irs,  thus: 

Names  from  A  to  D, 
E  to  K, 
L  to  R, 
S  to  Z. 

The  accounts  of  correspondents  or  other  banks  are  arranged  under 
to  divisions:  A  to  L, 

M  to  Z. 

Thus  twelve  individual  bookkeepers  are  employed,  eight  on  de- 
sitors'  accounts,  and  four  on  accounts  of  other  banks.  The  bal- 
:e  books  are  extended  before  the  hour  for  opening  next  morn- 
j,  and  the  footings  made  so  as  to  compare  with  the  general 
before  the  close  of  the  next  day. 

THE  PRINCIPAL   BOOKS. 

The  number  and  character  of  the  books  of  a  bank  which  make 
the  general  set  varies  according  to  the  volume  of  business  trans- 
ted.  The  routine  practiced  is  also  dependent  upon  the  extent  of 
ic  transactions.  For  the  purpose  of  illustration,  we  shall  give  in 
icse  pages  a  description  of  the  books  and  routine  best  adapted  to 
ic  needs  of  a  bank  of  a  moderate  type. 

Commencing  with  the   organization   of  the   Lunar  National   Bank, 
will  follow  the  transactions  of  a   period   sufficient  to  embrace  a 
listory  of  the  general   routine.     The   preliminaries  for   organizing  a 
inking    corporation   have  been   fully  described    under   Chapter    V. 
re  will   presume,   therefore,   that  all  the   preliminary  arrangements 
ive  been   perfected.      The    bank    is    organized    with    a    capital    of 
1250,000.     This  amount   is    paid    in    by  the   shareholders.     For  the 
iginal    entries    of  what   has    transpired,   we  look  to    the    minutes 
the    shareholders'   meetings    and    the    book    of   stock    subscrip- 
>ns. 

The  opening  entry  in  the  books  of  account  is  made  in  the 
icral  journal,  a  book  with  the  ordinary  journal  rulings.  The 
tnt  representing  the  certificates  of  stock  is  debited,  and  the 
mt  of  capital  stock  credited  for  the  amount  of  the  bank's 
ipital.  Before  any  of  the  certificates  have  been  issued  to  sub- 
:ribers,  they  (the  certificates)  form  the  only  resources  of  the  cor- 
>ration.  They  are  the  assets  against  the  liability  of  the  corpora- 
>n  for  the  amount  of  its  capital  stock.  As  the  stock  is  sub- 
ribed  for,  the  certificates  go  out,  and  the  corporation  holds  the 
:kholders  individually  and  collectively  for  the  amounts  thus  is- 
This  operation  is  recorded  by  charging  in  the  books  to 
account  of  "  Stockholders "  the  amount  subscribed  for,  and 
liting  the  account  of  stock  certificates.  When  the  shareholders 


Il6  PRACTICAL    BANKING. 

pay  in  their  subscriptions,  the  general  account  of  "  Cash  "  is  debited, 
and  the  account  of  stockholders  credited  with  the  payment.  Thus 
far  the  records  of  these  transactions  are  the  same  in  all  joint-stock 
companies. 

In  the  General  Ledger  the  account  of  "Stockholders"  represents 
these  several  accounts  collectively.  A  book  called  a  "Stock  Ledger" 
is  kept  for  the  purpose  of  keeping  the  accounts  of  these  persons 
separately.  The  Stock  Ledger  is  an  auxiliary  to  the  general  set. 

The  capital  having  been  fully  paid  in,  a  purchase  is  made  of 
$220,000  in  United  States  bonds,  on  which  a  premium  is  paid  of 
$30,000.  The  bonds  are  deposited  with  the  Treasurer  of  the  United 
States  at  Washington,  and  in  return  the  bank  receives  its  National 
bank  notes  to  the  amount  of  $  198,000,  less  $9,900,  the  five-per- 
cent, fund  for  the  redemption  of  circulation  by  the  United  States 
Treasurer. 

The  premium  on  bonds,  ten-per-cent.  fund  to  secure  circulation, 
and  five-per-cent.  fund  to  secure  redemption,  together  may  be 
treated  under  one  general  title,  they  forming  a  reserve  growing  out 
of  the  bank's  circulation.  The  title  we  have  chosen  is  "Circulation 
Reserve."  This  is  not  arbitrary.  The  account  represents  an  asset 
which,  in  the  example  used  here,  is  $61,900.  The  premium  paid 
in  on  the  bonds  forms  nearly  one-half  of  this  reserve.  But  so 
long  as  the  present  rate  of  interest  holds,  this  resource  is  as  sub- 
stantial as  so  much  money  locked  up  where  it  cannot  be  used 
until  the  bank  withdraws  its  circulation.  The  three  items  which, 
combined,  make  the  reserve  fund,  or  circulating  reserve,  could,  if 
it  were  desired,  be  treated  each  under  an  independent  title.  It 
would,  however,  only  encumber  the  books  and  serve  no  practical 
purpose  in  the  end. 

The  first  three  entries  in  the  journal  could,  in  a  case  of  the  kind 
used  as  an  illustration,  be  condensed  under  one  journal  entry. 
But,  suppose,  instead  of  all  the  stock  being  subscribed  for  at  once, 
only  a  part  had  been  taken.  Then,  too,  presuming  that  the  amount 
subscribed  for  had  been  only  paid  in  part.  It  will  be  seen  that 
each  of  the  entries  given  would  have  been  necessary  for  recording 
the  operations,  step  by  step  as  they  transpired. 

For  all  that  has  been  done  up  to  this  time,  it  was  not  necessary 
that  the  company  should  have  a  place  of  business   of  its  own.     It 
may  have    had  one,    however,  and    got  fairly   under  way  before  its 
circulating  notes  had  been   sent  on  from  the  Treasury  Department. 
But,  presuming  that  our  records   represent  the  transactions    in 
order  of  their  occurrence,  we  now  find  the  new  corporation 
to  rent  or  buy  a  place  to  conduct  its  business,  open  its  doors 
receive  deposits.      Let  us   proceed  to    examine   the  history  of  wl 
takes  place,  and  record  the  various  operations  in  the  books  of 
count. 


THE  BOOKKEEPER. 
GENERAL  JOURNAL. 


/  "'St 

Stock  Certificates  

256,000 

To  Capital  Stock  

Stockholders       .         

To  Stock  Certificates  

Cash                        

2  CO  OOO 

To  Stockholders  

United  States  Bonds  

22O,OOO 

Circulation  Reserve,  (Premium)  

lO.OOO 

To  Cash  

2  SO,  OOO 

108,000 

Circulation  Reserve,  (Ten  p.  c.  fund).  . 
To  United  States  Bonds  .'. 

22,000 

22O.OOO 

Tellers'  Circulation  

l88,IOO 

Circulation  Reserve,   (Five  p.  c.  fund)  . 
To  Bank  Circulation  

9,900 

I98,OOO 

HISTORY  OF  TRANSACTIONS. 

July  I. — Concluded  purchase  of  property  known  as  Treasury  Hall,  for 
bank  building,  paying  for  same  $27,500.  Recording  deed,  $2.50. 

I2th. — Bill  of  carpenter  for  fitting  up  bank  building,  $562,  paid. 

1 3th. — Bought  furniture  and  fixtures,  for  which  bill  amounted  to  $375. 

1 5th. — Paid  for  books  and  other  stationery,  including  express  charges,  $155. 

i6th. — Bought  postage  stamps,  $12.     Bill  for  printing,  paid,  $75.10. 

Correspondence  with  Arctic  Nat.  Bank  established  by  depositing  in  current 
funds  $  30,000.  Paid  expenses  of  President,  trip  to  New  York,  $  55. 

i8th. — Received  following  deposits :  H.  M.  Lutz,  585.10  ;  Theo.  Kitchen, 
1,624.75;  G.  A.  Lewis,  1,210.40;  E.  P.  Graham,  482.50;  W.  H.  Webb, 
1,540.82. 

Among  deposits  were  following  checks  and   bills : 
First  Nat.,  513.80,  75.30,  12.40.  1,210.40. 
East  River,  N.  Y.,  1,105.82. 
Hanover,  N.  Y.,  269.95. 

Stebbins,  F.,  &  Co.,  Lawrence,  Dak.,  71.50. 
Exchange,  Pike,  111.,  25.30. 

Discounted  paper  as  follows: 

For  Joseph  Arnold,  H.  Coulter's  note,  60  days,  1,000.00. 
For  W.  T.  Bartlett,  his  note,  60  ds.,  for  2,500.00;   secured  by  U.  S.  bonds. 
For  H.  Coulter,  O.  B.  Arnold's  note,  90  ds.,  3,500.00. 
For  J.  H.  Watt,  G.  A.  Lewis's  note,  30  ds.,  2,780.00. 
For  F.  Zahn,  R.  Ladd's  note,  60  ds.,  3,400.00. 

Bought  following  bills  on  New  York,  and  sent  same  for  credit  to  Arctic 
Nat.  Bank  : 

Theo.  Kitchen's  dft.  on  Imp.  and  Tdrs.',  endorsed  by  W.  T.  Bartlett, 
7,000.00  ;  premium,  7.00.  H.  C.  Rider's  dft.  on  C.  S.  Hough,  payable  at 
Nat.  Park,  4,000.00;  premium,  3.50. 


n8 


PRACTICAL    BANKING. 


Sold  exchange  on   Arctic  Nat.  as  follows  : 
H.   M.  Lutz,  2,500.00  ;    prem.,  3.25. 

F.  Zahn,   1,800.00;    prem.,  2.25. 

W.  H.  Webb,  250.00  ;    prem.  50  cts. 

Paid  the  following  checks : 
W.  H.  Webb,  250.50,  13.25. 
Theo.  Kitchen,  270.50,  18.42,  5.10. 

i gth. — Received  the   following  deposits  : 

G.  A.   Lewis,   516.80;   W.  H.  Webb,  275.10;   G.  A.  Linton,  1,255.00;    H. 
M.  Lutz,    346.10;    John    Rapson,    1,842.70;   J.    D.  Brown,    540.15;    J.  W. 
Torrey,  178.40. 

Among  the   deposits  were  the   following  checks: 
First  Nat.,  Hartford,  Conn.,  175.80. 
Chemical,  New  York,  255.10. 
Fourth  Nat.,  New  York,   156.50. 
Merch.   Nat.,  New  York,  127.40. 
All  of  which  were  remitted  Arctic  Nat.  for  credit. 

Paid  checks  as  follows : 
W.  H.  Webb,  75.80,  37.50,  42.60. 
G.  A.    Lewis,    13.15,  27.50,  105.85,   10.10. 
Theo.  Kitchen,  8.75,  75.80,  327.40,  8.25. 
H.  M.  Lutz,  107.10,   46.60,  3,27. 
G.  A.  Linton,  36.40,  27.85. 
J.  D.  Brown,  8.40,    10.75,  41.85. 

Received  for  collection  the  following  bills : 

No.  I — John  Rapson,  on  Brown  Bros.,  Chicago,  246.80  J  No.  2 — J.  W. 
Torrey,  on  Smith  &  Wood  New  York,  47.25  ;  No.  3— W.  H.  Webb,  oa 
Drexel,  Morgan  &  Co.,  1,247.50;  No.  4 — E.  P.  Graham,  on  Prince  & 
Whitely,  385.10;  No.  5 — J.  D.  Brown,  on  John  H.  Davis  &  Co.,  470.50. 

Many  banks  have  dispensed  with  the  Offering-Book.  The  infor- 
mation given  in  Chapter  VII.  explains  why  the  book  may  in  many 
cases  be  unnecessary.  (For  explanation,  see  page  126.) 

OFFERING-BOOK. 


Date. 

Offered  by 

Guarantee. 

Payable  at 

Amount 

To 
Run. 

Ac- 
cepted 

De- 
clined 

Re- 
marks 

July  18 

Joseph  Arnold. 

H.  Coulter  

Our  bank  

1,000 

60  ds. 

1,000 

*7 

W.  T.  Bartlett 

U.S.Bds  $3,200. 

Arctic,  N.Y.... 

2,500 

60  ds. 

2,500 

18 

H.  Coulter  

O.  B.Arnold.... 

Our  bank  

3»Soo 

90  ds. 

3.500 

16 

D.  Robb  

J.Hurd  

do. 

7  CO 

60  ds. 

750 

if 

J.  H.Watt.... 

G.  A.  Lewis..   .. 

Chemical,  N.Y. 

/O 

2,780 

30  ds. 

2,78- 

18 

C.  T.  Wood... 

J.  Green  

Our  bank  

i,  800 

60  ds. 

i,  800 

*7 

P.  Young  

T.  W.  Bush  

do  

500 

30  ds. 

500 

18 

F.  Zahn  

R.Ladd  

do  

3.400 

60  ds. 

3.400 

THE  BOOKKEEPER. 


119 


a 


M"  ef  w  cf 


R    8 


2 -a*. 


II 

i<i 
*U 

6  4 


B 


*  I 


120 


PRACTICAL  BANKING. 
RECEIVING  TELLER'S  CHECK-BOOK. 


Depositor. 

Cash. 

Dom.  Ex. 

For.  Ex. 

Total. 

July  18. 

413  oo 

75  3° 

96  80 

585  10 

Kitchen       

841  oo 

513  80 

269  95 

I  624  75 

Lewis   

I,2IO  40 

1,210  40 

2OO  OO 

la  40 

270  10 

4.82  ^o 

Webb           

435  °° 

1,105  82 

I  S4.O  82 

By  Paying  Teller         ,   ......... 

z.  880  oo 

1,811  oo 

5^443  57 

July  19. 

aOO  OO 

41  oo 

175  80 

5x6  80 

Webb        

2O  OO 

255  10 

275  10 

I  2OO  OO 

ss  oo 

1,255  oo 

•7OO  OO 

46  10 

14.6  10 

I,  =5OO  OO 

•M)O  OO 

42  70 

1,842  70 

Brown,  J.  D  

240  oo 

505 

995  xo 

54°  X9 

150  oo 

28  40 

178  40 

7,770  oo 

H  Dom.  Collections  

42Q  4$ 

814  80 

d  QZ4.  2*1 

COLLECTION 


Date  Left. 

No. 

Drawer  or  Endorser. 

Drawee  or  Maker. 

Where  Payable. 

Date. 

July  IQ 

I 

John  Rapson.     ... 

Brown  Bros       .   . 

Chicago  

Jul.    i 

10 

2 

A.  Cranberry  

Smith  &  Wood.  .  . 

N.Y           .... 

IO 

IO 

W.  H.Webb  

Drexel,  M.  &  Co. 

15 

ZQ 

Prince  &  W.  .  .  . 

*9 

IQ 

J.  H.  Davis  &  Co. 

*   ....  ..... 

19 

THE   BOOKKEEPER. 


121 


DOMESTIC  TICKLER. 
August. 


Date. 

No. 

Payer. 

Amount. 

Collected/or. 

Remarks. 

July  18.  .  . 

4 

G.  A.  Lewis  

2,780  oo 

Dis. 

September. 


July  18.  .  .  . 

i 

H.  Coulter  

1,000  oo 

Dis. 

18.  .  .  . 

2 

W.  T.  J3artlett  

2,500  oo 

Dis. 

18.... 

5 

R.  Ladd  

3,40000 

Dis. 

October. 


July  18... 

3" 

O.  B.  Arnolds  

3,500  oo 

Dis. 

REGISTER. 


Time. 

Due. 

Amount. 

Collected/or. 

Sent  to. 

Ck. 

•»o  ds. 

Auer     "\ 

246  80 

John  Rapson. 

V 

60  ds 

Sep.  ii 

47   25 

J.  W.  Torrey.  .  . 

Arctic  

V 

30  ds. 

All  ST.  17 

I  247    5O 

W.  H.  Webb. 

Arctic  

V 

30  ds. 

Aug.  21 

^8*  10 

E.  P.  Graham 

y 

30  ds. 

Aug  21 

4  7O   TO 

J.  D.  Brown  

y 

*  We  here  tickle  both  City  and  Out  of  Town  items  together,  but  banks  generally  separate 
these  items,  putting  them  on  opposite  pages  of  the  Tickler,  headed  respectively,  Domestic- 
Foreign. 


122 


PRACTICAL    BANKING. 


00 


S. 


0 


8, 


H 


THE   BOOKKEEPER.  123 

ITEMS  FOR  ILLUSTRATING  THE  DEBIT  AND  CREDIT  JOURNALS, 
(x.)  Rec'd  notice  from  First  National  of  Cleveland  that  Brown  &  Bacon's 
d'ft  on  Hardin  had  been  paid,  and  the  amount,  $842.25,  placed  to  our 
credit.  Brown  &  Bacon  deposited,  cash,  $  500.  ( See  Credit  Journal,  deposits 
column,  $1,342.25;  also  Depositors'  Ledger,  acc't  of  B.  &  B.  For  charge 
to  First  Nat.,  Cleveland,  see  Debit  Journal.) 

(2.)  Bo't  100  U.  S.  4s<gU23  ($12,300),  paying  by  draft  on  Fourth  Nat., 
New  York.  (See  Credit  J.,  general  col.  for  credit  to  Fourth  Nat.,  and  also 
Debit  J.,  general  col.  for  credit  to  Government  stocks. 

(3.)  Rec'd  notice  from  Second  Nat.,  St.  Louis,  that  John  Adams's  d'ft  on 
Beeten  for  $500  had  been  paid  and  placed  to  our  credit.  (See  C.  J.,  de- 
posit col.,  and  D.  J.,  general  col.  ;  also  Depositors'  Ledger.) 

(4.)  Paid  bill,  stationery  and  printing,  $47.50.  (See  D.  J.,  general  col.) 
Note. — This  is  entered  to  the  account  of  "  Expense."  In  some  banks  the 
general  expenses  are  divided  under  various  headings,  such  as  "Salaries." 
"Stationery  and  Postage,"  "Rent,"  "Fuel  and  Gas,"  etc.  The  "  Expens* 
Account"  in  such  instances  would  embody  only  items  of  contingencies  not 
provided  for  by  special  classification.  Classifying  the  items  is  a  matter  oi 
taste.  As  a  rule,  it  is  well  to  adopt  such  a  practice. 

FORM  OF  CREDIT  JOURNAL. 

Washington,  January  2y  1885. 


L.F. 

Title  of  Account. 

Items  and  Notation. 

Col.  &Ex. 

Deposits. 

Genera/. 

Brown  &  Bacon 

too  Col  842  25 

I  742  25 

Fourth  National,  N.Y. 
John  Adams  
Henry  Smith  

U.  S.  4#'s@i23.... 
Col  

500 
250 

12,300 

C.  C.  Brown  

1,250 

National  Park,  N.  Y.  . 

C.  Goodnough  
J.  Peters  

10 

4" 

4,000 
i,  600 

F.  Brokaw  

•»  14 

1,256 

R.  Albert  

80 

320 

P.  Fisher  
Amos  Smith  

Disct  
//     ,.... 

3,979 
2,953  50 

F.Hill  

2,467  50 

Interest  

Disct  .  Register  .... 

6  25 

93  75 

24  IQ 

Col.  &  Exchange.. 

24    IQ 

12,742  25 

12,742  25 

Cash,  Dr  

32,336  19 

, 

124 


PRACTICAL  BANKING. 
FORM  OF  DEBIT  JOURNAL. 

Washington,  January  2,  1885. 


L.F. 

Title  of  account. 

Items  and  Notations. 

Col.  &•  Ex. 

Deposits. 

General. 

First  Nat.,  Cleveland.. 
Governments  

B.  &B.  Col  

4's  pr.  dft.  4th  Nat. 

842  25 

12  "IOO 

Second  Nat    St  Louis 

J   Adams  Col 

Expense 

Stationery  Prinfg 

Fourth  National  N  Y 

Remittance. 

Second  Nat.,  Wash'n. 
F.  Brokaw  

T  Swift  . 

C.C.  Brown's,  K.. 
Goodnow,      4,010.. 
Peters,            1,000.. 
1,25914  

1  20  145  50  200 

i»259  J4 

1,000 

5,010 

8  10,  14  60,  105  30. 

128 

H.  Smith  

•312  CO 

105,  318  10  

421  to 

Bills  Discounted  
Dom.  Exchange  

D.  R  
D.R  

4,000 
5,500 

Deposits,  Dr  

Checks  paid  

2,  588  24 

2  ^88   24. 

Cash,  Cr  

Disbursements.  .... 

11,787  OQ 

DISCOUNT. 


When 
Discounted. 

No. 

Drawer  or  End. 

Drawee  or  Mkr. 

Where  Pay. 

Date. 

Time. 

Jan.  2  

i 

P.  Fisher  

J.  C.  Vermont.. 

Washingt'n. 

Jan.  2 

60 

2 

Amos  Smith.... 

T.  Wilder  

N.  Y  

Jan.  2 

9° 

•7 

C.  Stevens  

Brown  &  Bacon. 

Chicago  .... 

Jan.  2 

60 

THE   BOOKKEEPER. 


I25 


(5.)  Sold  drafts  on  Nat.  Park,  New  York,  as  follows:  C.  Goodnow,  $4,000, 
cxch.  $  10  ;  J.  Peters,  $1,600,  exch.  $4;  F.  Brokaw,  $1,256,  exch.  $3.14; 
R.  Albert,  $320,  exch.  8oc.  (See  C.  J.)  Rec'd  in  payment,  Goodnow's  c'k 
on  Second  Wash'n,  $4,010;  Peters'  c'k  on  do.,  $1,000,  balance  cash;  F. 
Brokaw's  c'k  on  us,  $1,259.14.  (See  D.  J.  and  Depositors'  Ledger,  d'ft  to 
Albert  paid  in  cash.) 

(6.)  Discounted  notes  for  P.  Fisher,  $4,000;  Amos  Smith,  $3,000;  F. 
Hill,  $2,500.  Total,  $9,500.  (See  D.  J.,  general  col.  from  Discount  Regis- 
ter ;  also  C.  J.  deposits,  and  col.  and  exch.  from  Discount  Register.) 

Note. — The  original  entries  of  these  transactions  would  be  those  in  the 
Discount  Register.  The  transactions  then  find  their  way  to  the  Ledger 
through  the  Debit  and  Credit  Journals. 

(7.)  Paid  checks  of  Swift,  Loveland,  Smith  and  Adams.  ( See  Debit  Journal, 
deposits  col.) 

THE    DISCOUNT    REGISTER. 

The  purposes  served  by  the  Discount  Register  are  what,  in  a 
mercantile  business,  would  be  found  in  the  use  of  a  Bill-book. 
The  formular  arrangement  of  the  Register  is  somewhat  more  ex- 
tensive than  that  of  the  Bill-book,  as  the  information  desired  by 
a  bank  covers  a  broader  field  than  that  sought  by  a  commercial 
house.  In  this  book  are  recorded,  in  the  order  of  discount,  the 
notes  which  become  the  property  of  the  bank.  The  names  of  the 
drawer  or  endorser  appear  first,  and  then  come  those  of  drawee  or 
maker.  Following  these  are  columns  for  information  as  to  where  the 
note  is  payable,  the  time  specified  on  its  face,  date  when  due,  and 
time  it  is  to  run  for  which  discount  is  charged.  The  amount  of 

REGISTER. 


WnDue. 

To  Run. 

Bills  Dis. 

Dom.Ex. 

Int. 

Col.&Ex. 

Proceeds 

Credited  To 

Ck. 

March  6.. 

63 

4,000 

21 

3,979 

P.  Fisher.... 

V 

April  5  . 

93 

3,000 

4650 

2,953  50 

Amos  Smith. 

* 

March  6.. 

63 

2,500 

26  25 

625 

2,467  50 

F.  Hill  

/ 

4,000 

5,5oo 

9375 

6  25 

9,40000 

126  PRACTICAL    BANKING. 

the  note  is  sometimes  classified  under  two  headings,  as  seen  in  the 
illustration,  viz.,  "  Bills  discounted  "  and  "  Domestic  exchange,"  and 
sometimes  it  is  entered  under  one  heading,  as  "  Amount "  or 
"  Face."  When  the  two  columns  are  used,  the  first  embraces  the 
notes  payable  at  home,  or  in  the  place  where  the  bank  is  located, 
and  the  latter  those  payable  at  other  places.  A  column  is  pro- 
vided for  "  Interest,"  another  for  "  Collection  and  Exchange,"  and 
one  also  for  "  Proceeds."  Finally  the  name  appears  to  whom  the 
proceeds  are  credited,  and  a  narrow  column  is  added  for  the 
"  check "  which  is  made  as  the  items  are  posted. 

There  are  many  forms  of  this  book  in  use,  some  less  and  some 
more  elaborate  than  the  one  we  have  given.  Some  banks  treat  all 
notes  discounted  under  the  one  general  title  of  "  Bills  Receivable," 
and  use  as  a  record  only  the  simplest  form  of  a  bill-book.  In 
many  banks  a  large  number  of  books  are  used  which  the  experi- 
ence and  skill  of  progressive  accountants  have  demonstrated  are 
not  really  essential.  There  is  a  growing  tendency  among  bank  ac- 
countants to  dispense  with  every  book  not  absolutely  necessary,  and 
to  abridge  the  bookkeeping  in  every  way  possible.  This  is  a  com- 
mendable spirit  of  reform,  but  care  should  be  taken  that  the 
abridgement  is  not  carried  to  excess,  lest  grave  inaccuracies  creep 
in  through  the  lack  of  proper  checks  and  proofs. 

THE  OFFERING-BOOK. 

Chapter   VII.     is   devoted   chiefly   to  the    subject    of   discounting 
paper.     The  information  there  given   is  so   explicit  that  nothing  re- 
mains to  be  said  here  more  than  to  explain  some  special  functions 
of  the   Offering-book,  and  give  an   idea  of  its   place  in   a  system  of 
bank  accounts.     On    page   62,  in  the  chapter  referred  to,   reference 
is  made  to  the  formula  arrangement  of  the    Offering-book.     There 
is   no   prescribed   rule  for  the  form  to  be  employed.     Any  arrange- 
ment  that  will   best  meet  the   requirements   may  be  adopted.     But 
little  difference  in  the  style  is   to    be   noticed  among  the   many  in 
use.    We  submit  a   form  that   seems   to    fill  the  requirements.    The 
form  may  be  improved   upon  for  some   institutions.     Some   Offering- 
books  have  a  column  headed  "  Average  Balances."    This    is   to  give 
the  information  contained  in  the  Average-book,  for  a  description  of 
which  see  page  59.     Where  an  Average-book  is  kept,  the  addition  of 
the  average  balance  column  is  not  essential,  and  if  it  tends  to  make 
the  book  cumbersome,  should  be  omitted.    The  Offering-book  is  com- 
monly termed  a  memorandum   or  auxiliary  to  the   regular  set.     It. 
however,  acts  as  the  book  of  original  entry  for  the  class   of  trans- 
actions which    originate    therein.     From  the  Offering-book  the  rec- 
ord  is    carried   to    the   Discount    Register,  through   which   it  enters 
the  ledgers.     A   record  of  the  discounted  paper  must  also  be  carried 
to  the  Domestic  Ticklers,  if  payable  at  home,  or   to   the   Domestic- 
exchange  Book,  if  sent  away  for  collection. 


THE   BOOKKEEPER. 


127 


THE  DEPOSIT  JOURNAL. 

The  Deposit  Journal  is  not  as  universally  used  as  the  General 
Ledger,  the  Tickler  or  Discount  Register.  It  is  used  in  many  country 
banks,  and  helps  to  simplify  and  abridge  the  entries  in  the  General 
Journal.  One  side  of  the  book  shows  the  work  of  the  paying 
teller,  and  the  other  that  of  the  receiving  teller,  coupled  with  the 
records  of  certificates  of  deposit  issued.  Certificates  of  deposit  are 
sometimes  issued  by  one  official  and  sometimes  by  another.  In  some 
country  banks  the  cashier  is  also  paying-teller  and  receiving  teller, 
/.  e.,  he  performs  the  duties  of  both,  and  may  be  also  the  book- 
keeper, note  teller  and  discount  clerk.  We  do  not  refer  to  the  func- 
tions of  the  various  departments  of  service  with  the  idea  that  the 
various  duties  must  be  performed  by  one  and  the  same  person.  If 
the  one  person  acts  as  both  paying  and  receiving  tellers  the  De- 
posit Journal  becomes  a  mere  cash-book  for  recording  a  special  line 
of  transactions. 

THE  DEPOSIT-JOURNAL. 


Debits,  Monday,  Jan.  $,  1885. 


Credits,  Monday ;  Jan.  j ',  1885. 


Names. 

Checks. 

CtfsDep. 

s 
sj 

Names. 

Deposits. 

Ctfs  Dep 

C.  H.  Pine  

2IO  40 

75° 

Jos.  Arnold..  .  . 

I  4.06   IO 

W.  B.  Hincks  

F  N  Benham 

7^    «5O 

F.  W.  Marsh 

I  CQ  AO 

H.  B.  Drew  1510 

500 

C.  H.  Pine  

7t   CQ 

T  L  Bartholomew 

J.  P.  Wood  . 

CTC. 

Wm.  E.  Seeley.... 
I.  B.  Prindle  

i?S 

Total  Deposits.... 
Total  Ctf's  issued. 

1,510  90 

1,510  90 

1,000 

E.  E.  Post  

Total  C'ks  Pd  
Total  Ctf'sPd  

2,300  70 

2,300  70 
675 

Paying  Teller's 

Credits. 

2,975  7° 

Receiving  Teller 

Chg>d.... 

2,510  90 

Besides  the  books  described,  there  may  also  be  named  several  rec- 
ords or  registers,  such  as  the  Certificate  of  Deposit  Register  and 
Draft  Register.  These  are  simple  forms,  and  require  no  special  ex- 
planation upon  their  formular  arrangement  nor  instruction  upon 
their  use.  The  former  is  a  mere  record  of  the  certificates  of  de- 
posit: when  issued,  to  whom,  the  amount,  and  when  paid.  The  lat- 
ter furnishes  information  as  to  the  drafts  or  bills  drawn  on  corre- 
sponding banks,  date,  in  whose  favor,  on  whom  drawn,  and  amount. 

NOTE.— For  explanation  of  "Depositors'  Balance  Ledger,"  see  pages  112,  113. 
Figures  in  italics  represent  balances,  which  are  carried  forward  in  -oencil. 


128  PRACTICAL    BANKING. 


CHAPTER  XV. 
THE   RUNNER    AND    PORTER. 

He  is  a  young  man,  and  occupies  the  lowest  position  in  the  bank. 
He  is  simply  a  messenger  to  collect  drafts  and  notes.  Boys  are 
hired  who  are  eighteen  to  twenty  years  old,  are  paid  a  small  salary, 
and  are  quickly  trained  to  go  around  the  city  with  notes  and 
drafts  for  collection.  Their  instructions  are  simple  and  definite, 
They  must  not  take  anything  beside  a  certified  check  or  good 
money,  unless  instructed  by  the  Note  Teller  to  do  otherwise.  He 
has  charge  of  the  runners,  who  are  promoted  whenever  vacancies 
occur.  Many  bank  clerks  and  not  a  few  cashiers  and  presidents 
began  as  runners. 

In  London  a  bank  messenger  or  runner  is  called  an  out  teller,  or 
collecting  clerk.  His  duties  are  quite  the  same,  though  his  methods 
differ  in  some  respects.  When  he  starts  out  from  the  bank,  on 
what  is  there  termed  his  "walk,"  he  leaves  behind  him  a  record 
of  the  route  he  is  to  travel,  and  of  the  collecting,  notifying,  and 
presenting  he  is  to  do,  in  a  book  called  the  WALK  BOOK.  In 
this  way  the  bank  is  kept  informed  of  the  whereabouts  of  their 
absent  messenger,  a  bit  of  information  that  must  be  highly  appre- 
ciated. In  our  banks  and  offices  the  inquiry,  "Where  is  that 
messenger  ? "  has  become  as  familiar  as  the  question,  "  Where 
are  the  police?"  The  London  collecting  clerk,  or  out  teller,  in- 
variably has  his  wallet  strapped  to  his  body  with  chain  and  belt, 
a  practice  which  has  in  some  cases  been  copied  here,  and  ought 
to  be  here  more  widely  in  vogue.  The  drafts  which  he  takes  upon 
his  route  for  presentation,  for  acceptance,  are  always  left  with  the 
drawees,  who  have  twenty-four  hours  in  which  to  return  them  to 
the  bank. 

The  porter  is  the  janitor.  His  duty  in  some  banks  is  to  appear 
when  the  watchman  leaves  at  six  o'clock  in  the  morning.  He  puts 
the  bank  in  order,  and  stays  until  the  clerks  come,  then  takes  all 
the  books  out  of  the  vault  and  puts  them  in  their  proper  places. 
It  is  now  probably  about  half-past  nine.  At  night,  after  the  clerks 
go  away,  he  puts  the  books  back,  locks  the  vault  and  stays  in  the 
bank  until  the  watchman  appears  at  eight  o'clock.  After  the  clerks 
are  gone,  the  janitor,  porter  or  watchman  is  always  present. 


DEPOSITORS'  DAILY  BALANCE  BOOK.  129. 

In  explanation  let  us  refer  to  the  form  on  page  in  (Depositors* 
Daily  Balance  Book).  The  "balance"  column  for  Monday,  Sept.  15, 
is  footed  to  show,  opposite  "net  total  deposits,"  $6,316.70.  The  figures 
in  this  column  added  together  do  not  make  this  amount,  but  the 
balance  credits  added  together,  and  the  overdraft  of  $160,  against  the 
account  of  O.  F.  Berry,  deducted  therefrom,  make  the  footing  as> 
shown,  which  is  proven  by  taking  the 

Balance  for  the  preceding  day 5*873  05 

Diminished  by  "  total  checks "  of  Sept.  15 3,067  35  2,805  7& 

Increased  by  ' '  total  deposits, "  Sept.  15 3,51 1  co 

Which  gives  "  net  total  deposits  " 6,316  70 

This  $6,316.70  does  not  show  the  full  amount  of  deposits  for  which 
the  bank  is  liable,  but  it  shows  the  deposits  less  the  overdrafts. 

After  footing  the  columns  entitled  "  balance,"  "  total  checks,"  and 
"  total  deposits,"  as  shown  opposite  the  account  entitled  "  net  total 
deposits,"  and  as  explained  above,  the  bookkeeper  proceeds  upon  the 
same  form  to  make  up  a  general  statement  of  the  bank's  condition. 

The  amounts  in  the  first  column  of  balances  are  supposed  to 
have  been  brought  forward  from  the  preceding  page.  Under  the 
column  entitled  "total  checks,"  we  find  the  amount  $2,710,  showing- 
a  disbursement  of  cash  for  two  notes  discounted,  $710  and  $2,000  re- 
spectively. This  is  placed  in  the  column  of  "total  checks,"  simply 
because  it  shows,  as  does  the  footing  above  it,  a  diminution  of  cash 
for  the  day.  In  the  following  column  :  "  total  deposits,"  and  opposite 
the  $2,710  is  the  amount  $3,100.  This  also  belongs  to  the  account  of 
"notes  discounted,"  but  represents  a  collection  by  the  bank,  which 
increased  the  cash  and  diminished  the  "  notes  discounted  "  account,, 
thus  leaving  to  that  account  a  balance  of  $43,810.  Summarizing  the 
transactions  we  have  this  statement : 

Debit  balance  to  notes  discounted  Sept.  13 44,200  oo 

Two  notes  discounted  Sept.  15,  710  and  2,000 2,710  oo  46,910  co 

Collections  from  notes  paid 3, 100  oo» 

Debit  balance  of  account  Sept.  15 43,8io  oa> 

Following  the  account  of  "  notes  discounted  "  is  that  of  "  discount :" 

Credit  balance  from  Sept.  13 1,400  oo 

Received  during  the  day,  Sept.  15 150  oo 

Total  account  at  close  of  the  day i»S5O  oo 

The  item  of  $150  receipts  was  placed  in  the  column  of  "total  de- 
posits "  that  it  might  be  added,  like  the  preceding  amount,  to  the  cash, 
receipts,  though  it  has  no  connection  with  the  depositors'  accounts. 

The  account  of  "  profit  and  loss  "  has  met  with  no  change  during 
the  day,  and  it  is  simply  transferred  from  one  column  to  the  other  as. 
an  uncharged  asset  or  debit  account.  The  account  of  expense  has; 
been  increased  by  the  payment  of  a  printing  bill  of  $5.  The  amount: 
is  placed  in  the  column  of  "  total  checks,"  because  it  represents  a  dis- 
bursement of  cash.  From  $407  on  the  I3th  the  account  appears  ia 
the  new  balance  as  $412. 


130  PRACTICAL  BANKING. 


CHAPTER   XVI. 
DEALINGS    IN    EXCHANGE. 

A  bill  of  exchange  is  a  familiar  instrument,  for  it  is  one  of  the 
oldest  used  in  commerce.  It  may  be  denned  as  an  order  by  a  person 
on  another  living  in  a  different  place,  directing  him  to  pay  a  sum 
of  money  to  a  third  person.  Worcester's  definition  of  exchange 
is :  "  the  method  of  adjusting  accounts  or  paying  debts,  when  the 
debtor  and  creditor  are  distant  from  each  .other,  by  means  of  an 
order  or  draft  called  a  bill  of  exchange,  so  as  to  avoid  the  trans- 
mission of  either  money  or  goods."  The  person  who  writes  the  bill 
is  called  the  drawer,  the  person  to  whom  it  is  addressed  is  called  the 
drawee,  and  the  person  who  is  to  receive  the  money  is  called  the 
payee.  When  the  drawee  has  accepted  the  bill  he  is  called  the 
acceptor.  This  is  done  by  writing  his  name  and  the  word  "ac- 
cepted "  across  the  face  of  the  bill,  and  also  the  date  if  the 
bill  is  payable  after  sight.  In  accepting  a  bill,  the  acceptor  cannot 
vary  the  terms  of  it ;  for  example,  if  it  be  drawn  on  a  person  living 
in  New  York,  and  payable  there,  he  cannot  accept  it  payable  in 
Boston.  He  must  follow  the  direction  in  the  bill. 

The  phrase  "  bill  of  exchange  "  is  often  abbreviated  and  called  simply 
exchange.  In  newspaper  quotations  the  one  word  is  generally  used. 
Thus  "  exchange  on  New  Orleans,"  or  "exchange  on  London,"  is  quoted 
at  a  certain  figure.  The  term  is  somewhat  ambiguous,  however, 
sometimes  meaning  the  rate  of  exchange  and  sometimes  the  instru- 
ment. But  the  term  is  employed  in  such  relations  to  other  words 
that  persons  have  no  difficulty  in  understanding  what  is  meant. 

What  is  the  use  of  these  instruments,  and  what  purpose  do  they 
serve?  Suppose  that  Jones,  who  lives  in  New  York,  owes  Williams, 
of  St.  Louis,  $  10,000.  Exchange  on  New  York  being  almost  always 
at  a  premium,  Jones  will  either  send  his  certified  check  on  his 
New  York  bank  for  the  amount  he  owes  in  St.  Louis,  or  he  will 
deposit  the  money  in  his  New  York  bank,  and  take  the  bank's 
certificate  of  deposit  for  the  amount,  payable  to  the  order  of  his 
debtor,  Williams,  in  St.  Louis.  Williams  will  have  no  difficulty  in 
negotiating  this  certified  check,  or  the  certificate  of  the  New  York 
bank,  because,  as  already  stated,  New  York  exchange  is  almost 
^everywhere  acceptable.  But  if,  on  the  other  hand,  Williams,  of  St. 


DEALINGS   IN   EXCHANGE.  131 

Louis,  desires  to  pay  $10,000  to  Jones,  of  New  York,  he  will  either 
draw  a  draft  on  some  party  in  New  York  who  is  indebted  to  him, 
and  send  the  draft  to  Jones,  or  he  will  go  to  his  bank  in  St. 
Louis  and  buy,  at  the  current  rate,  exchange  on  New  York,  /.  e., 
the  bank's  draft  on  its  New  York  correspondent,  payable  to  the 
order  of  Jones.  If  bills  of  exchange  did  not  exist,  Williams  would 
be  obliged  to  ship  the  money  from  St.  Louis  to  New  York.  This 
would  cost  expressage,  besides  the  danger  of  loss  by  robbery  or 
other  accident,  and  the  loss  of  interest  during  the  period  of  trans- 
mission. 

Many  bills  are  drawn  payable  at  sight,  and  in  certain  States 
these  must  be  paid  when  presented.  In  other  States,  however,  the 
drawees  are  entitled  on  sight  drafts  to  three  days'  grace.  To  ren- 
der bills  payable  at  once  when  presented  the  words  "  at  sight " 
are  omitted,  and  the  dratts  are  then  payable  on  demand. 

The  business  of  buying  and  selling  exchange  is  a  very  large  one, 
especially  that  of  foreign  exchange.  The  buying  of  exchange  comes 
about  in  this  way.  Suppose  Williams,  of  St.  Louis,  having  sold  a 
bill  of  goods  to  Jones,  of  New  York,  has  drawn  a  bill  of  exchange 
on  Jones  for  the  amount  payable  to  his  (Williams')  own  order. 
Williams  wants  the  money  at  once,  perhaps  to  pay  for  purchases. 
He  goes  to  a  bank  and  asks  the  cashier  if  he  will  buy  the  bill. 
The  cashier  looks  at  it;  he  knows  that  the  drawee  is  perfectly  good, 
and  that  in  the  event  of  his  failure  to  pay  he  can  hold  the  drawer 
responsible.  He  buys  the  bill  and  pays  Williams  the  money  there- 
for. Transactions  of  this  kind  are  occurring  daily  among  the  banks. 
Enormous  quantities  of  cotton,  wool,  breadstuff s,  provisions  of  all 
kinds  and  other  commodities  are  bought  and  paid  for  by  means  of 
bills  of  exchange.  The  bank  charges  the  agreed  rate  of  exchange 
and  interest  to  reimburse  itself  for  the  use  of  the  money  until  the 
draft  or  bill  can  be  collected.  The  bill  is  then  forwarded  for  col- 
lection to  the  correspondent  of  the  bank  in  the  place  where  the 
draft  is  payable. 

It  is  a  very  common  thing  for  the  western  merchant  to  make  ad- 
vances to  the  farmer  or  planter  to  enable  him  to  grow  his  crops. 
He  may  advance  him  cash  or  furnish  him  with  the  necessaries  of 
life,  usually  in  either  case  taking  as  security  a  chattel  mortgage  on 
his  stock  and  a  lien  upon  the  growing  crops.  Suppose  the  product 
to  be  cotton.  When  gathered  the  cotton  is  shipped  to  the  mer- 
chant, who  proceeds  to  sell  it  for  account  of  the  planter,  and  to  re- 
imburse himself  for  the  advances  made.  When  sold  the  cotton  is 
shipped  East,  and  the  transportation  company's  bill  of  lading  for 
so  many  bales  is  attached  to  the  merchant's  draft  on  the  consignee 
for  the  value  of  the  cotton ;  or  the  merchant  may  forward  the 
goods  to  a  commission  merchant  East  for  sale.  He  then  attaches 
his  draft  for  the  approximate  value  of  the  goods,  and  goes  to  his 


132  PRACTICAL   BANKING. 

local  banker  and  sells  his  bill  of  exchange  with  documents,  the  latter 
being  endorsed  so  as  to  convey  the  title  to  the  cotton  to  the  owner 
of  the  draft. 

Merchants  in  St.  Louis,  Chicago  and  the  other  Western  and 
Southern  points  are  constantly  buying  merchandise,  groceries,  dry 
goods,  etc.,  from  merchants  in  New  York  and  the  East.  For  this 
merchandise  the  West  and  South  is  indebted  to  New  York  and  the 
East.  On  the  other  hand,  the  products  of  the  West  and  South, 
cotton,  grain,  beef,  pork,  etc.,  are  constantly  being  shipped  North 
and  East. 

The  transactions  in  cotton,  for  example,  exceed  three  hundred 
millions  a  year,  a  large  portion  of  which  is  consigned  to  houses  in 
the  North,  who  make  advances  on  the  security  of  these  instru- 
ments. Formerly  the  method  of  doing  business  was  different.  Then 
the  banks  in  New  York  and  other  places  would  not  advance  on 
bills  of  lading  and  warehouse  receipts,  and  if  the  broker  or  mer- 
chant did  so  he  had  the  money  from  wliich  the  advance  was 
made.  In  those  days  cotton  was  sold  on  sixty  days'  time.  As  soon 
as  it  was  purchased  in  the  North  the  planter  drew  on  the  re- 
ceiver, and  after  the  bill  was  accepted  the  local  bank  cashed  the 
paper.  But  now  the  Southern  banks  have  not  enough  money  to  do 
this  business,  and  cannot  take  the  paper  when  offered,  and  conse- 
quently the  planter  consigns  the  cotton  and  draws  for  three-quarters 
or  more,  of  its  value.  By  the  present  method,  it  may  be  added,  the 
receivers  must  have  more  capital  than  formerly,  as  then  they  had 
two  months  in  which  to  sell  and  get  money  before  their  accept- 
ances became  due. 

Several  years  ago  a  quantity  of  wheat  was  sent  from  Chicago  on 
a  bill  of  lading  to  order.  The  bank  in  that  city  advanced  on  it, 
and  the  grain  was  forwarded,  under  the  direction  of  the  bank,  to 
a  certain  storehouse,  with  instructions  to  keep  it  until  the  drafts 
that  represented  the  advance  •  were  paid.  As  these  had  several 
months  to  run,  the  storekeeper,  who  was  a  speculator,  thought  it 
would  be  a  fine  thing  to  use  the  grain,  intending  to  put  other 
grain,  similar  in  quality  and  quantity,  in  its  place  before  the  drafts 
matured.  Accordingly,  he  forwarded  it  to  a  house  in  New  York 
for  sale.  The  consignee  was  a  careful,  cautious  man.  He  exam- 
ined the  bill  of  lading,  found  that  it  was  genuine,  examined  the 
wheat  also,  and  found  that  it  answered  the  description  required, 
and  made  a  large  advance  at  the  request  of  the  consignor  on  the 
same.  The  grain  was  sold,  and  the  balance,  after  deducting  the 
charges,  etc.,  was  paid  over  to  the  storekeeper. 

It  is  needless  to  add  that  his  speculation  turned  out  disastrously, 
and  consequently  he  could  not  replace  the  wheat.  Then  the  bank 
in  Chicago  found  out  that  their  wheat  was  not  where  they  sup- 
posed it  to  be.  They  traced  the  wheat  into  the  hands  of  the  con- 


DEALINGS  IN   EXCHANGE.  133 

signee  of  New  York,  and  though  he  had  obtained  it  in  a  perfectly 
honest  way,  yet,  inasmuch  as  the  storekeeper  had  no  title  to  it,  he 
could  convey  no  title  to  the  consignee,  and  consequently  the  latter 
was  held  liable.  This  doctrine  has  made  the  business  of  advanc- 
ing money  on  the  security  of  bills  of  lading  more  perilous  than  is 
agreeable  to  bankers  and  commission  merchants,  and  the  question 
arises  whether  it  is  not  possible  to  grant  greater  protection  to  them 
than  they  now  receive.  Ought  not  common  carriers  to  be  held  re- 
sponsible for  the  acts  of  their  agents  in  issuing  bills  of  lading?  A 
bill  embodying  this  obligation  was  introduced  into  Congress  at  the 
last  session.  It  substantially  declares  that  bills  of  lading,  issued  by 
an  agent  authorized  to  issue  such  instruments,  should  be  conclusive 
evidence  against  the  carrier  in  the  hands  of  a  bona-fide  holder  for 
value,  that  the  freight  was  actually  received  as  in  the  bill  of  lading 
stated,  and  that  the  agent  issuing  the  same  had  full  authority  to 
do  so.  To  prevent  this  rule  from  becoming  too  severe  in  its  practi- 
cal application  as  against  the  carriers,  the  proposed  law  contained 
a  further  provision  that  the  carrier  should  not  be  responsible  under 
the  provisions  of  the  same  on  any  bill  of  lading  on  which  he 
stamped  the  words  "  not  negotiable,"  nor  for  any  statement  of  fact 
in  such  a  bill  of  lading  caused  wholly  by  the  fraud  of  the  shipper 
of  the  merchandise  therein  named,  the  holder  of  the  bill,  or  the 
person  under  whom  he  claimed. 

It  was  hoped  that  this  measure  would  meet  the  necessities  of  the 
case,  for  while  it  is  true  that  much  may  be  said  upon  the  propriety 
of  making  principals  responsible  for  the  acts  of  their  agents,  it  is 
also  true  that  that  doctrine  may  be  carried  to  such  an  extent  as 
to  work  positive  injustice.  To  make  carriers  responsible  to  an  un- 
limited amount  upon  bills  of  lading  issued  at  remote  and  unim- 
portant stations  by  agents,  of  whose  actions,  owing  to  the  circum- 
stances, carriers  have  but  little  actual  knowledge  or  control,  is  per- 
haps to  increase  the  risks  of  the  transportation  business  beyond  its 
legitimate  limits. 

The  practical  effect  of  the  bill  would  be,  if  enacted,  that  rail- 
road companies  would  issue  to  their  agents  generally  non -negotiable 
bills  of  lading,  which  could  not  be  made  negotiable  by  any  era- 
sure or  alteration ;  they  would  provide  their  trusted  agents  at  the 
largest  receiving  depots  with  negotiable  bills  of  lading,  which  would 
be  issued  as  required. 

There  is  another  kind  of  bill  which  may  be  described.  A  firm 
in  New  York  sends  an  agent  to  Chicago  to  buy  grain.  Mr.  Snooks, 
the  agent,  buys  a  considerable  quantity,  and  in  order  to  make  pay- 
ment draws  on  his  principal  or  consignor  for  the  full  amount  of  his 
engagement.  He  takes  this  bill  to  a  bank  and  asks  them  to  ad- 
vance the  money,  as  in  the  case  just  mentioned.  The  bank,  if  hav- 
ing funds,  is  usually  willing  to  grant  the  advance  requested. 


134  PRACTICAL    BANKING. 

The  bank  forwards  the  draft  to  its  corresponding  bank  in  New 
York,  which  presents  it  to  the  drawee  in  due  time.  He  accepts 
it,  and  pays  according  to  its  tenor.  In  this  case,  as  the  wheat  is 
purchased  for  the  consignee,  of  course  he  is  liable  for  the  amount, 
and  the  bill  is  drawn  for  the  full  sum  that  is  due  for  it. 

When  a  draft  is  offered  for  sale,  how  much  will  a  bank  pay  for 
it?  To  answer  this  question  clearly  a  brief  explanation  is  necessary. 
If  the  business  men  in  New  York  are  selling  about  as  many  goods 
to  the  merchants  in  St.  Louis  as  they,  on  the  other  hand,  are  sell- 
ing to  New  Yorkers,  then  the  bills  of  exchange  drawn  in  both 
cities  will  be  at  par — in  other  words,  they  will  be  transferred  from 
one  person  to  another  for  just  the  amount  expressed  on  their  face. 
There  may  be  a  very  slight  difference,  enough  to  pay  the  banks 
for  the  trouble  of  buying  and  selling  them ;  but,  for  the  moment, 
we  will  leave  that  fact  out  of  sight.  But  now,  suppose  that  the 
merchants  of  St.  Louis  are  selling  the  New  Yorkers  three  times  as 
many  goods  as  the  former  are  buying  in  New  York,  then  the  mer- 
chants of  New  York  would  owe  those  of  St.  Louis  three  times  as 
much  money.  The  reader  will  perceive  that  there  will  be  three  times 
as  many  bills  drawn  by  the  merchants  of  St.  Louis  as  by  the  New 
Yorkers,  and  if  all  the  St.  Louis  merchants  should  wish  to  sell 
their  bills  they  could  not  get  par  for  them,  because  the  buyers  could 
not  sell  them  at  a  profit,  for  the  simple  reason  that  there  would 
be  occasion  for  using  only  one-third  of  them  in  settling  the 
debts  due  by  the  St.  Louis  merchants  to  the  New  Yorkers.  On 
the  other  hand,  if  all  the  New  Yorkers  should  desire  to  sell  their 
bills  they  could  get  more  than  par  for  them,  because  the  entire 
amount  would  settle  only  one-third  of  their  indebtedness  to  the  St, 
Louis  merchants.  The  bills,  therefore,  which  the  New  York  mer- 
chants would  draw  on  those  in  St.  Louis  would  command  a  premium, 
while  the  bills  drawn  by  the  St.  Louis  merchants  on  the  New  York 
ones  would  be  at  a  discount.  It  may  be  added  here,  in  passing, 
that  the  bills  drawn  by  the  New  York  merchants  on  those  in  St. 
Louis  would  be  called  St.  Louis  exchange,  and  the  bills  drawn  by 
the  St.  Louis  merchants  on  those  in  New  York,  New  York  ex- 
change. When  the  New  York  merchants  cannot  get  St.  Louis  ex- 
change at  par,  but  must  pay  a  premium  therefor,  the  rate  of  ex- 
change as  between  the  two  cities  is  said  to  be  against  New  York; 
if  the  St.  Louis  merchants  should  owe  a  balance  to  those  in  New 
York,  then  they  would  be  obliged  to  pay  a  premium  to  get  New 
York  exchange  with  which  to  settle  their  indebtedness,  and  the 
rate  of  exchange  would  be  in  favor  of  New  York.  In  other  words, 
the  rate  of  exchange  is  always  against  the  place  that  owes  the  most 
money,  and  in  favor  of  the  place  that  owes  the  least.  But  the 
rate  of  exchange  does  not  exceed  the  cost  of  transporting  specie, 
and  the  cost  of  doing  this  between  many  places  is  small ;  for  this 


DEALINGS  IN   EXCHANGE.  135 

reason  the  rate  of  exchange  between  Boston  and  New  York  is  very 
little.  Although  a  great  many  bills  are  drawn  on  these  two  cities, 
yet  the  rate  is  very  low,  because  they  are  so  near  together,  and 
the  modes  of  communication  are  so  perfect  that  money  may  be 
readily  sent  from  one  city  to  the  other  to  discharge  any  indebted- 
ness which  may  exist  between  them  which  cannot  be  easily  settled 
with  the  medium  of  bills  of  exchange.  Further  on  we  have  given 
quotations  of  bills  of  exchange  drawn  on  New  York  by  other  places. 
It  will  be  seen  that  the  rate  is  only  five  cents  on  $  1,000  in  Boston 
— a  sum  too  insignificant  to  be  considered.  But  between  New  York 
and  other  places  farther  away  the  rate  is  higher. 

One  thing  further  ought  to  be  said  in  this  connection.  At  cer- 
tain seasons  of  the  year  a  large  amount  of  grain  is  shipped  from 
the  West  to  the  East,  also  pork,  beef,  lard,  and  other  provisions; 
enormous  quantities  of  cotton  are  shipped  from  the  South,  too, 
and  many  other  articles  which  need  not  be  mentioned.  At  the 
same  time,  Western  merchants  are  making  large  purchases  in 
the  East,  New  York,  Philadelphia,  Boston,  and  elsewhere.  But 
the  purchases  made  in  the  East  are  not  so  heavy^  as  those  made 
by  the  Eastern  men  of  the  West.  The  consequence  is,  there  are 
not  enough  bills  of  exchange  made  in  the  East  to  pay  all  of 
the  indebtedness  to  the  West;  in  other  words,  the  rate  of  ex- 
change during  those  seasons  of  the  year  is  pretty  steadily  against 
the  Eastern  cities.  When  the  balance  becomes  large  and  the  rate 
of  exchange  considerable,  it  is  absolutely  necessary  to  remit  cur- 
rency to  the  West  to  restore  the  balance  of  trade.  There  is  no 
other  way  of  restoring  it.  Years  ago,  when  money  was  less  plen- 
tiful in  the  West  than  it  is  at  the  present  time,  there  was  a 
more  urgent  need  of  transmitting  money  to  effect  these  settlements. 
Even  now,  large  quantities  go  at  certain  seasons  of  the  year. 

The  banks  buy  bills  of  exchange  in  order  to  sell  them  again  ;  this 
is  a  part  of  their  regular  business.  They  buy  at  one  rate  and  sell 
at  a  higher  rate.  When  the  exchange  is  said  to  be  at  par  between 
two  cities  it  is  not  strictly  so,  inasmuch  as  a  bank  will  not  give 
quite  as  much  for  a  bill  of  exchange  as  it  asks  for  one  when  sell- 
ing it.  Of  course,  if  it  bought  and  sold  at  the  same  price  no 
profit  would  be  made  in  the  business,  and  there  would  be  no  rea- 
son for  undertaking  it ;  hence,  the  buying  and  selling  rate  is  never 
the  same.  Thus,  in  an  ordinary  newspaper  report  we  find  the  fol- 
lowing, which  is  extracted  from  the  New  York  Journal  of  Com- 
merce of  August  ist : 

The  following  are  the  rates  of  exchange  on   New  York: 
Savannah,  buying   y& ;  selling   %   premium. 
Charleston,  buying  par@>6  ;  selling  3-i6@#   premium. 
New  Orleans  commercial,  $1.50  per  $  1,000  premium;  bank,  $2.50 
per  $i,ooo  premium. 


136  PRACTICAL    BANKING. 

St.   Louis.    500.   per  $  1,000   premium. 
Chicago,   750.   per  $  1,000   premium. 
Boston,  par@5c.   per  $  1,000  discount. 

When  a  Charleston  bank,  for  example,  buys  exchange  on  New 
York,  it  expects  to  sell  it  again  to  persons  who  have  payments  to 
make  in  the  latter  city.  It  does  not  sell  the  same  bills  that  it 
buys ;  it  could  do  so,  however,  if  any  persons  desired  them.  What 
the  bank  actually  does  is  to  forward  the  bills  purchased  to  the 
bank  with  which  it  corresponds  in  New  York  for  collection ;  that 
bank  presents  them  to  the  drawee  at  the  proper  time  and  they 
are  paid,  and  the  amount  is  credited  to  the  Charleston  Bank. 
When  a  man  enters  the  Charleston  Bank  desirous  of  buying  a 
bill  of  exchange  on  New  York,  it  simply  draws  a  bill  on  its  cor- 
responding bank  in  that  city  and  sells  it  to  the  party  desiring  the 
same,  charging  him  therefor  whatever  the  prevailing  rate  may  be 
at  that  time.  Just  now,  as  will  be  seen  from  the  above  quotation 
from  the  newspaper,  the  rate  is  one-quarter  of  one  per  cent. 

Banks  do  not  always  charge  their  customers  for  a  bill  of  exchange, 
either  when  selling  or  collecting  it.  The  custom,  however,  of  charg- 
ing generally  prevails  among  banks ;  nevertheless,  the  fact  that  ex- 
ceptions are  sometimes  made  is  worth  noting.  In  the  exceptional 
cases  the  dealer's  account  may  be  a  very  profitable  one,  and  this  favor 
is  shown  to  him  as  a  kind  of  reward  or  gratuity  or  premium  to  make 
him  feel  better  satisfied  with  the  bank.  But  a  gratuity  of  this 
kind  granted  to  a  dealer  is  rather  an  outside  matter,  and  does  not 
pertain  strictly  to  the  banking  business. 

It  may  be  stated  in  this  connection  that  some  depositors,  instead 
of  going  to  their  bank  and  buying  a  bill  of  exchange  when  they  wish 
to  pay  a  debt  due  in  another  city,  send  their  check  to  the  person 
whom  they  owe ;  he  receives  it  and  deposits  it  in  his  bank  which 
afterwards  sends  it  for  collection  to  the  bank  on  which  it  is 
drawn.  It  will  be  seen  that  the  depositor  by  doing  this  cuts  off  his 
bank  from  selling  him  a  bill  of  exchange,  and  his  real  object  of 
doing  this  is  to  save  money  by  the  operation.  This  has  become  a 
subject  of  considerable  complaint  among  bankers.  The  question 
has  been  raised  whether  some  method  cannot  be  devised  for  col- 
lecting these  checks,  and  thereby  effecting  a  considerable  saving 
among  all  the  parties  concerned.  In  that  part  of  this  work  relat- 
ing to  the  Clearing-house,  a  chapter  will  be  found  pertaining  to 
this  subject. 

In  regard  to  foreign  bills,  what  we  have  already  said  applies 
in  most  respects  to  them.  The  rate  of  exchange  does  not  exceed 
the  cost  of  shipping  gold  from  the  debtor  to  the  creditor.  As 
between  Great  Britain  and  our  own  country  this  cost  does  not  ex- 
ceed two  cents  to  the  pound  sterling. 


DEALINGS   IN    EXCHANGE.  137 

There  are  occasions  though  when  the  exchanges  sink  and  rise 
much  below  the  specie  point,  which  is  not  accounted  for  by  the 
single  fact  of  a  balance  of  indebtedness,  either  for  or  against  a 
given  country.  Such  an  occasion  occurred  early  in  1861,  when  war 
was  impending  between  the  North  and  South.  Fluctuations  in  the 
American  rates  of  exchange  extended  far  below  the  specie  point. 
The  balance  of  trade  was  in  favor  of  the  United  States,  and  a  large 
sum  was  due  from  Great  Britain.  Yet,  exporters  sacrificed  three  or 
four  per  cent,  on  their  bills  in  order  to  get  their  money  imme- 
diately. The  exporter  had  two  courses  open  to  him — either  to  sell 
his  bills  for  what  they  would  fetch,  or  to  transmit  them  to  Europe 
with  instructions  to  his  correspondents  to  demand  payment  and  re- 
mit the  amount  in  bullion.  The  former  course  was  pursued,  conse- 
quently the  bills  were  sold  at  a  large  sacrifice. 

The  items  determining  the  question  whether  to  send  specie  or 
buy  a  bill  of  exchange  are  the  following:  cost  of  sending  specie, 
insurance  thereon,  and  the  loss  of  interest  on  the  specie  during 
shipment  from  one  country  to  the  other. 

Suppose  that  Jones  owes  a  bill  in  London ;  he  goes  to  a  house 
in  Wall  Street  which  deals  in  foreign  bills.  The  par  of  exchange 
between  the  two  countries  is  $4.86T6^;  that  is  the  legal  value  here 
of  a  pound  sterling.  The  question  in  Jones'  mind  when  he  goes  into 
this  house  is,  whether  he  shall  buy  a  bill  and  send  that  to  Lon- 
don in  discharge  of  his  debt,  or  whether  he  shall  transmit  specie 
for  the  same  purpose.  Of  course,  he  will  do  the  thing  which  is 
cheapest.  Remembering  that  the  par  of  exchange  between  the  two 
countries  is  $4.86^,  and  that  the  cost  of  shipment  is  two  cents 
in  the  pound,  if  he  can  buy  a  bill  at  less  than  $4.88^  of  course 
it  would  be  cheaper  for  him  to  buy  the  bill  than  to  send  the 
specie.  On  the  other  hand,  if  he  were  obliged  to  pay  more  than 
$4.88^  for  the  bill,  then  it  will  be  cheaper  to  send  the  specie. 

Suppose  an  Englishman  has  a  debtor  in  New  York  who  owes 
him  ^10,000,  payable  in  that  city,  shall  he  send  over  there  and  get 
the  money  and  import  it  into  his  own  country,  or  shall  he  draw 
on  his  debtor  for  the  amount  and  sell  the  bill?  Remembering  that 
the  par  of  exchange  is  $4.86T^,  and  that  it  will  cost  him  two 
cents  in  the  pound  to  transport  his  specie,  it  is  clear  that  any  sum 
which  he  can  get  for  his  debt  exceeding  $4.84^  is  a  saving  on 
the  importation  of  gold.  On  the  other  hand,  if  he  cannot  sell  the 
bill  for  $4.84^,  but  only  for  a  sum  considerably  less  than  that 
figure,  his  more  profitable  course  is  to  import  specie. 

When  bills  are  payable  on  time,  say  30,  60  or  90  days,  they  com- 
mand a  lower  price  than  when  they  are  payable  at  sight.  The 
reason  is,  the  buyer  pays  cash ;  he  sends  the  bill  to  Great  Britain 
to  pay  his  debt,  but  it  is  not  paid,  say,  for  60  days,  and  as  he  is 
out  of  the  money  during  the  interval  the  bill  is  bought  at  a  re- 
duced rate. 


138  PRACTICAL    BANKING. 


The  sum  paid  for  a  time-bill,  therefore,  will  depend  on  the 
length  of  time  it  has  to  run  and  the  rate  of  interest  in  the  country 
where  the  bill  is  payable.  /  A  bill  drawn  payable  in  London  three 
months  after  date  is  bought  by  a  banker  at  a  price  which  is  equal 
to  a  bill  payable  on  demand,  less  three  months'  interest  at  the  rate 
at  that  time  prevailing  in  London,  for  the  purchaser  must  discount 
the  bill  there  at  the  ruling  rate  before  he  can  make  it  equally 
available  with  a  draft  on  demand.  It  may  be  added,  that  when  for- 
eign bills  are  bought  as  an  investment,  a  thing  often  done,  it  is 
for  the  purpose  of  earning  the  higher  rate  of  a  foreign  country,  in 
the  place  of  the  lower  rate  ruling  at  home. 

It  may  be  well  to  note  that  when  bills  are  quoted  at  $4.84  the 
quotation  does  not  mean  that  they  are  two  per  cent,  less  than  par, 
but  simply  that  they  can  be  bought  for  two  cents  and  ^  less 
than  the  regular  value  of  a  pound  sterling.  If,  for  example,  a  bill 
of  exchange  were  drawn  for  £  1,000,  the  amount  would  be  equiva- 
lent to  $4,866.50;  if  it  were  quoted  at  $4:85,  this  quotation  would 
mean  that  the  bill  could  be  bought  for  $4,850.00,  or  $16.50  less 
than  the  par  of  exchange. 

Within  a  few  years  the  practice  has  arisen  of  transferring  money 
by  telegraph,  or,  as  it  is  termed  by  the  newspapers,  "  cable  trans- 
fer." By  this  method  a  merchant  who  desires  to  ship  wheat  to 
London  can  complete  the  transaction  in  a  few  hours.  He  can 
ship  the  wheat,  telegraph  the  fact  to  the  consignee  at  London, 
obtain  particulars  concerning  the  conditions  of  the  market,  and,  if 
he  think  best,  have  the  wheat  sold  at  once,  "to  arrive,"  and  to  re- 
mit the  proceeds  through  a  London  banker.  A  bill  does  not  ap- 
pear at  all  in  the  transaction.  The  amount  of  business  done  in 
this  manner  has  materially  reduced  the  volume  of  bills  in  some 
places.  In  the  Eastern  trade  with  London,  in  which  competition  is 
exceedingly  keen  and  the  margin  of  profit  consequently  small,  the 
telegraphic  transfer  system  has  been  in  use  for  several  years.  The 
amount  of  cable  transfers  between  this  country  and  European 
countries  is  constantly  increasing. 


PRIVATE   BANKS.  139 


CHAPTER    XVII. 
PRIVATE    BANKS. 


Although  of  less  relative  importance  than  formerly  they  were,  prU 
vate  banks  continue  to  maintain  a  good  standing,  and  prove  well 
adapted  to  some  phases  of  the  business  of  banking.  According  to 
the  last  report  of  the  Comptroller  of  the  Currency  (December,  1883) 
the  private  banks  hold  about  fifteen  per  cent,  of  the  totals  of  capi- 
tal and  deposits,  excluding  those  of  Savings  banks.  The  capital 
employed  by  a  private  bank  is  apt  to  be  variable  in  amount,  not  a 
fixed  sum  represented  by  stock  certificates,  so  that  the  returns, 
which  are  made  the  basis  of  a  tax,  probably  represent  the  minimum 
of  capital  employed. 

In  addition  to  this,  it  may  be  said  that  many  of  the  State  banks, 
while  running  as  such,  are  in  reality  private  institutions,  the  capit;d 
stock  being  held  by  one  or  two  owners,  and  the  directorship  being 
nominal.  This  use  of  bank  organizations  is  facilitated  by  the  ease 
with  which  they  can  be  formed  in  most  of  the  States,  and  is  re- 
sorted to  from  various  reasons.  In  some  cases  it  is  to  have  the 
benefit,  when  starting  a  new  concern,  of  the  prestige  and  credit 
which  the  title  of  "  bank  "  is  supposed  to  give ;  in  others,  and  more 
frequently,  to  secure  the  immunity  of  limited  liability ;  in  others, 
again,  to  retain  the  name  and  clientage  of  a  long-established  busi- 
ness. One  of  the  largest  State  banks  in  the  West,  with  a  deposit 
line  of  millions,  and  a  very  large  volume  of  business,  reports  a 
capital  of  $  100,000,  but  in  this  instance  the  owner  advertises  that 
"the  stockholders  are  individually  responsible,  without  limit,  for  all 
the  liabilities  of  this  bank." 

In  view  of  these  facts  it  is  probable  that  private  banking  occu- 
pies a  rather  more  important  place  than  the  returns  published  by 
the  Comptroller  would  indicate. 

His  figures,  however,  furnish  the  only  trustworthy  basis  of  com- 
parison to  be  had,  and  from  them  some  interesting  results  are  to  be 
obtained. 

The  following  table,  taken  from  the  last  published  volume  of 
the  Comptroller  of  the  Currency,  shows  the  geographical  distribu' 
tion  of  bank  capital  and  deposits,  excluding  Savings  banks : 


140 


PRACTICAL    BANKING. 


Geographical. 
Division. 


New  Eng.  States. 
Middle  States... 
Southern  States. 
W.  States  &Ter. 


Totals. 


National  Banks. 


No. 


691 
214 
843 


Capital. 

Millions. 
166.23 

173-19 
34-8 
110.66 


484.88 


Deposits. 


Millions. 
193.15 


301.28 
1,119.82 


State  Banks  and  Trust 
Companies. 


No. 


40 
210 
248 
563 

io6t 


Capital. 

Millions. 

8.30 

40.60 

25-34 

48.90 

123.14 


Deposits. 

Millions. 

3J-64 

244.02 

45-94 
168.40 


Private  Banks. 


No. 


2OO2 


490.00    1 3412 


Capital. 

Millions. 

6.22 
62.42 

6-33 
30-31 

105.28 


Deposits. 

Millions. 

6-57 

112.69 

20.68 

149.02 

288.96 


The   average  capital  and  deposits    in  the  three  classes   of    banks 
are  as  follows: 

Capital.  Deposits. 

National  banks $210,100  ....  $485,200 

State  banks 116,000        461,800 

Private  banks 30,800  ....  84,700 

The  ratio  of  capital  to  deposits  is,  in  the  National  banks 433 

/»•*//        State  banks 251 

*  «  u  a        Private  banks 364 

a  *  *  •        All  classes 376 

The  proportions  of  the  totals  of  capital   and  deposits  as   held  by 
each  class  in  the  several  geographical   divisions  are  given  below : 

, Per  Cent,  of  Total. « 

for  the  Three  Classes.  Capital  Deposits. 

New  England  States 254  ....  .122 

Middle  States 387  .481 

Southern  States 093  ....  .071 

Western  States  and  Territories 266  ....  .326 

, Per  Cent,  of  Total. , 

For  the  National  Banks.  Capital.  Deposits. 

New  England  States 343  ....  .  173 

Middle  States 357  ....  .497 

Southern  States 072  .061 

Western  States  and  Territories 228  .269 

, Per  Cent,  of  Total. , 

For  State  Banks  and  Trust  Companies.                  Capital.  Deposits. 

New  England  States 067  .064 

Middle  States 330  .498 

Southern  States 206  ....             .  094 

Western  States  and  Territories ,,.,,..,   .    .397  ....            .344 

, Per  Cent,  of  Total. . 

For  Private  Banks.  Capital.  Deposits. 

New  England  States 059  ....  .023 

Middle  States 593  ....  .  390 

Southern  States 060  ....  .071 

Western  States  and  Territories 288  ....  .516 


PRIVATE   RANKS.  14! 

These  figures  show,  among  other  things,  that  the  average  of 
;apital  and  deposits  is,  as  might  be  expected,  lowest  in  the  private 
ranks,  and  highest  in  the  National  banks.  About  midway  between 
the  two,  in  respect  to  average  capital,  come  the  State  banks,  while 
the  average  deposits  of  the  latter  nearly  equal  those  of  the  National 
banks.  As  the  profits  of  banking  come  chiefly  from  loaning  de- 
posits, it  would  seem  that  in  the  greater  ratio  of  deposits  to  capi- 
tal is  to  be  found  a  source  of  gain  to  offset  that  which  comes 
from  circulation,  especially  when,  as  at  present,  the  margin  of  profit 
from  this  source  is  reduced  to  so  thin  a  shaving.  The  high  ratio 
of  capital  shown  by  the  National  banks  is  due,  in  part  at  least,  to 
the  provision  of  the  National  Bank  Act,  which  fixes  the  minimum 
limit  of  capital  for  banks  organized  thereunder,  scaling  them  pro- 
portionately, in  some  degree,  to  the  population  of  the  towns  and 
cities  in  which  they  are  located.  The  ratio  of  capital  to  deposits 
of  the  private  banks  closely  approximates  to  'that  shown  by  three 
classes  taken  as  a  whole. 

This  analysis  of  the  Comptroller's  table  furnishes  other  inter- 
esting and  instructive  comparisons,  which,  however,  cannot  be 
dwelt  upon  here,  as  they  do  not  bear  upon  the  subject  of  this 
chapter. 

The  general  character  and  function  of  the  private  banks  is  shown 
by  their  small  averages,  and  also  by  their  geographical  distribu- 
tions. Nearly  two-thirds  of  their  number,  and  over  fifty  per  cent, 
of  their  deposits,  are  reported  from  the  Western  States  and  Ter- 
ritories. It  is  in  that  region  of  new  and  small  communities  where 
active  enterprise  and  industry  abound,  along  with  a  plentiful  lack 
of  capital,  that  the  conditions  are  found  most  favorable  to  their 
establishment  and  maintenance.  A  town  too  small  to  establish  or 
support  a  National  bank,  with  a  capital  of  fifty  thousand  dollars, 
may  yet  feel  the  need  of  banking  facilities,  and  this  need  becomes 
more  and  more  pressing  until  a  leading  merchant,  or  some  man 
who  has  been  in  the  way  of  buying  notes  or  making  small  loans 
at  remunerative  rates,  either  assumes  or  gradually  has  forced  upon 
him  the  functions  of  a  banker  and  puts  out  his  sign.  His  capital 
may  be,  and  usually  is,  small  at  the  outset,  but  in  a  rural  commun- 
ity every  man  is  known  to  his  neighbors.  His  "means"  are  closely 
estimated,  his  integrity  and  ability  are  pretty  correctly  gauged,  his 
habits  and  manner  of  life  are  known.  In  respect  to  these  he  is  sub- 
jected, not  to  periodical  and  perfunctory  examinations  by  National 
or  State  officials,  but  to  continuous  and  rigid  watchfulness  by  self- 
constituted  examiners  who  are  very  apt  to  reach  correct  results,  al- 
though they  are  not  permitted  to  count  his  cash  or  scrutinize  his 
bills  discounted  and  his  ledger.  If  he  passes  this  investigation  suc- 
cessfully he  will  win  the  confidence  of  his  townsmen  and  his  busi- 
ness will  prosper.  Such  has  been  the  origin  of  many  of  the 


142  PRACTICAL    BANKING. 

largest    and    most     respectable    private    institutions    now    in    exist- 
ence. 

Private  bankers,  so  far  as  they  command  public  confidence,  do 
so  upon  their  reputation  for  wealth  and  their  character  for  honesty 
and  ability,  and  these  are  applied  directly  to  the  management  of 
the  business  confided  to  them.  Under  these  circumstances  there 
must  be,  other  things  being  equal,  a  greater  concentration  of  re-  b 
sponsibility,  a  stronger  sense  of  direct,  personal  liability  than  is  felt 
by  either  the  directors  or  officers  of  incorporated  institutions,  so 
that  this  form  of  banking  offers  to  the  dealer,  equally  with  any 
other  system,  that  which  must  after  all  be  his  chiefest  and  best 
guaranty,  namely,  faith  in  the  integrity  and  capacity  of  the  man- 
agement. 

Private  banks,  however,  lack  one    important  quality,  that  of    per- 
manency.    Especially  is  this  the  case   in  the   United   States,  and  as,   > 
from  various  causes,  they   may  be  wound   up,  they  are  little  likely, 
in  the  great  cities   and   larger  towns,  to  be   replaced   by  similar  in- 
stitutions.     Gradually,   with   the    growth    and    development    of   the   ! 
country,  the  function  which  they  are  best   fitted   to   fill   diminishes, 
and  their  business  is  merged  into  or  usurped  by  National  and  State 
banks ;   and   this  tendency  will  continue. 

As  to  the  details  of  their  management,  little  need  be  said.  These 
should  in  no  wise  differ  from  those  of  well-conducted  National  and 
State  banks,  and  for  the  most  part  they  are  so  managed.  In  rare 
instances  private  banks  have  adopted  the  practice  of  making  public 
reports  of  their  condition,  and  publishing  them  along  with  those 
furnished  periodically  by  their  National  and  State  competitors.  It 
would  be  well  if  in  some  way  this  could  be  made  a  universal 
custom. 

Occasionally  there  is  to  be  found  a  banker  who  affects  to  despise 
theory  and  red  tape,  names  by  which  he  designates  the  restrictions 
which  it  is  the  intention  of  National  and  State  statutes  to  impose, 
but  it  will  generally  prove  that,  if  successful,  he  adheres  to  their 
substance  if  not  to  their  form.  The  advantages  which  are  some- 
times claimed  to  be  found  in  an  immunity  from  these  salutary  re- 
quirements are  questionable.  So  far  as  such  so-called  advantages 
are  embraced,  their  tendency  is  to  allure  men  from  the  safe  paths 
of  correct  banking;  the  prudent  and  successful  bankers,  under  any 
system,  are  those  who  hold  themselves  strictly  amenable  to  the 
rules  and  principles  which  experience  has  proved  ought  to  govern. 

A  few  words  should  be  said  about  the  large  banking  houses  that 
are  only  to  be  found  in  great  commercial  centers  like  New  York. 
Many  of  them  were  originally  founded  with  a  view  to  conducting 
a  regular  banking  business,  of  receiving  deposits  and  discounting 
commercial  bills,  and  numbers  of  them  continue  to  do  a  large 
business  of  this  kind,  especially  for  out  of  town  correspondents. 


PRIVATE   BANKS.  143 

But  they  have,  for  the  most  part,  gone  largely  into  the  business  of 
placing  corporate  loans,  of  acting  as  agents  for  States  and  munici- 
palities, and  of  dealing  in  foreign  exchange.  Along  with  their 
growth  in  this  direction  there  has  been  a  decline  in  that  which 
may  be  more  strictly  termed  banking,  until  many  of  them  have 
come  to  resemble  the  great  financial  firms  of  London,  who  style 
themselves  merchants,  not  bankers. 

Several  of  the  larger  banks  in  New  York  have  from  time  to 
time  sought  to  enlarge  their  dealings  in  foreign  exchange,  but 
never  with  any  marked  degree  of  success.  The  causes  of  this  are 
not  far  to  seek.  A  busy  banker  engrossed  in  the  management 
of  a  large  line  of  deposits  and  discounts  cannot  scan  with 
sufficient  care  the  wide  field  of  foreign  exchanges.  The  condi- 
tions of  supply  and  demand,  the  different  standards  of  money, 
the  changing  rates  of  interest  in  the  various  financial  centers,  and 
the  numerous  other  influences,  ordinary  and  extraordinary,  which 
affect  the  business  of  exchanges,  demand  nothing  less  than 
constant  study  by  the  man  who  would  master  them,  and  their 
perfect  mastery  is  necessary.  It  is  probable,  too,  that  the  foreign 
agencies  which  are  available  for  a  bank  to  employ  do  not  render 
the  effective  service  that  is  requisite;  that  the  London  and  Con- 
tinental branches,  having  common  interests,  which  form  a  part  of 
the  organization  of  all  the  large  houses  dealing  in  exchange,  are 
essential  to  success.  This  segregation  of  the  exchange  business 
from  that  of  banking  is,  however,  but  an  illustration  of  the  in- 
evitable tendency  to  specialization  which  marks  commercial  prog- 
ress. 


144  PRACTICAL    BANKING. 


CHAPTER   XVIII. 
COUNTRY    BANKING. 

General  principles  of  banking  apply  alike  to  banks  irrespective  of 
location.  Details  in  conducting  the  business  may  be  materially  in- 
fluenced by  the  bank's  position  in  the  country.  The  routine  of 
large  banks  in  commercial  centers  is  usually  the  outgrowth  of  long 
experience,  careful  experiment  and  constant  thought  of  improvement. 
The  bank  president  in  a  country  town,  though  he  may  have  carved 
his  way  to  position,  through  gradual  advancement  from  runner  or 
sweeping-boy,  would,  if  placed  at  the  head  of  one  of  the  large 
banks  of  a  metropolitan  city,  be  found  unable  to  manage  its  af- 
fairs. He  may  be  a  better  financier  and  possess  greater  executive 
ability  than  many  city  bank  presidents,  but  he  would  lack  in  that 
particular  knowledge  which  comes  only  from  experience.  What  we 
say  of  bank  presidents  will  apply  as  well  and  possibly  with  more 
strength  to  other  officers  and  to  the  clerical  force.  And  in  select- 
ing the  president  in  our  illustration  we  do  not  refer  to  that  class 
who  are  presidents  only  in  name.  We  mean  presidents  who  are 
in  every  sense  entitled  to  the  position.  And,  thanks  to  the  prog- 
ress of  the  times,  figurehead  presidents  are  not  so  numerous  now 
as  a  few  years  ago.  Sharp  competition  has  lifted  banking  to  a 
science.  It  has  brought  capable  heads  almost  without  exception 
into  president's  chairs.  This  is  true  of  country  as  well  as  of  city 
bank  presidents. 

However  true  the  above,  it  furnishes  no  evidence  that  less  capa- 
bility, thoroughness,  or  good  financiering  is  required  in  the  country 
than  in  the  city  bank.  Especially  good  judgment,  careful  calcula- 
tion, and  a  close  watch  over  the  finances  are  requisite  in  conduct- 
ing a  country  bank.  Opportunities  to  loan  money  are  not  often, 
as  favorable  in  the  country  as  in  large  business  centers.  The  se- 
curities offered,  too,  are  of  a  different  kind.  The  country  banker's 
customers  are  more  frequently  personal  acquaintances  and  friends. 
He  is  called  upon  oftener  to  lay  aside  personal  and  friendly  con- 
siderations in  loans  and  discounts.  He  must  know  his  customers 
better  because  he  trusts  them  more  on  personal  obligations.  Loans 
in  large  cities  are  made  largely  on  collateral  securities.  In  country 
banks  such  securities  are  seldom  received.  The  personal  responsibil- 


COUNTRY   BANKING.  145 

ity  of  the  borrowers  or  of  their  endorsers  is  more  usually  the  thing 
to  be  considered. 

The  routine  of  bank  work  varies  according  to  the  volume  of 
business  transacted.  The  methods  employed  in  a  bank  where  the 
average  balances  due  depositors  reach  half  a  million  dollars  would, 
in  a  bank  where  such  balances  did  not  exceed  one  hundred  or  two 
hundred  thousand  dollars,  prove  cumbersome  and  complicated.  On 
the  other  hand  a  system  which  meets  every  requirement  in  the 
medium-size  institution  would,  if  introduced  in  the  large  city  bank, 
be  found  wholly  inadequate.  The  clerical  force  of  a  bank,  too,  has 
much  to  do  with  the  method  that  may  be  introduced  to  the  best 
advantage.  In  the  larger  city  banks  it  is  not  unusual  to  see  em- 
ployed as  the  clerical  force  twenty  to  forty  persons.  Many  banks 
in  small  cities  and  towns  find  that  two  or  three  persons  will  do 
the  work  comfortably.  We  could  name  many  banks  of  respectable 
size  where  the  average  deposits  reach  one  hundred  thousand  to 
two  hundred  thousand  dollars,  in  which  not  more  than  two  clerks 
are  employed,  and  some  where  one  clerk  and  the  cashier  get 
through  with  the  work.  The  cashier  in  such  case  is  also  paying 
teller,  receiving  teller,  discount  clerk,  note  teller,  and  general  book- 
keeper. The  work  is  often  divided  up  between  the  two  or  three 
persons  without  any  special  reference  to  the  functions  of  individual 
members  in  a  fully  organized  force. 

The  books  used  in  a  country  bank  do  not  differ  materially  in 
number  or  formular  arrangement  from  those  used  in  metropolitan 
places.  The  following  are  those  in  most  common  use:  general  led- 
ger, general  journal,  deposit  journal  or  teller's  cash,  deposit  ledger, 
sometimes  called  individual  ledger  and  sometimes  customers'  ledger, 
collection  register,  discount  register,  tickler,  sometimes  two  ticklers, 
foreign  and  domestic ;  certificate  of  deposit  register,  draft  register, 
deposit  ledger  balance  book,  or  as  some  term  it  depositors'  balance 
ledger,  and  offering  book,  the  latter  being  sometimes  dispensed 
with.  Then  there  are  also  used  in  some  banks  a  discount  ledger 
and  daily  general  balance  book.  A  monthly  statement  book  is  kept 
by  National  and  also  by  many  private  or  State  banks. 

An  experienced  country  bank  bookkeeper  gives  the  following  de- 
scription of  his  daily  routine : 

"  I  enter  in  the  journal  all  remittances  in  detail ;  total  amount  of 
loans  and  notes  discounted  each  day,  the  latter  I  get  from  the 
discount  register;  notes  and  loans  paid,  which  come  from  the  tick- 
ler, these  being  entered  separately  in  the  journal  with  the  total  only 
extended  into  the  money  column.  Collections  paid,  if  belonging  to 
our  correspondents,  go  in  the  journal ;  if  they  do  not  belong  to 
correspondents,  they  are  remitted  for  direct ;  the  draft  register,  in 
these  transactions,  completes  the  entry  which  opens  in  the  collection 
register.  Drafts  drawn  on  our  correspondents  are  journalized  and 


146  PRACTICAL    BANKING. 

other  transactions  such  as  exchange,  interest,  expense,  etc.  In  clos- 
ing the  journal  for  the  day,  the  footings  of  the  deposit  journal, 
which  with  us  are  the  total  amount  of  checks  paid  and  the  total 
amount  of  deposits  received,  are  entered.  In  one  respect  my  journal 
represents  a  cash  book.  I  bring  forward  each  day  the  balance  of 
cash  on  hand.  This  enables  me  to  prove  my  cash  by  my  journal 
by  balancing  it  the  same  as  a  cash  book.  The  journalizing  is  done 
at  the  close  of  banking  hours  and  the  entries  are  posted  to  the 
ledger  during  the  first  hours  of  the  next  day.  As  the  posting  is 
done,  the  new  balances  are  entered  in  the  daily  balance  book  which 
is  lying  conveniently  on  the  desk.  Opposite  the  accounts  not  af- 
fected the  previous  day's  balances  are  extended.  When  the  posting 
is  finished  the  daily  balance  book  is  footed,  which  furnishes  a  proof 
of  the  work. 

"On  the  debit  side  of  the  deposit  journal  appear  all  checks  and 
certificates  of  deposit  paid ;  on  the  credit  side  are  deposits  received 
and  certificates  of  deposit  issued.  The  footings  only  of  this  book 
are  journalized.  The  footings  are  made  direct  to  the  depositors' 
ledger.  The  account  in  the  general  ledger  of  "  Deposits "  is  charged 
and  credited  from  the  journal. 

"  Our  ledgers  are  provided  with  balance  columns,  the  general 
ledger  having  one  account  to  a  page,  the  deposit  ledger  two.  In 
the  general  ledger  there  are  four  money  columns,  two  for  items 
and  two  for  balances.  In  the  deposit  ledger  there  are  but  three 
columns,  Dr.,  Cr.,  and  balance.  In  the  balance  column  over-drafts 
are  distinguished  from  credit  balances  by  being  entered  in  red  ink. 

"We  use  only  one  collection  register.  It  is  made  to  serve  a 
double  purpose,  viz. :  it  is  a  record  of  bills,  etc.,  brought  in  by  our 
customers  to  be  sent  out  for  collection,  and  also  of  collections  re- 
ceived from  our  correspondents  and  others,  excepting  sight  drafts. 
After  the  record  is  made  in  the  collection  register,  it  is  entered  in 
the  tickler  under  the  day  on  which  it  falls  due.  When  the  collection 
is  paid  we  make  the  proper  notation  in  the  tickler  and  either  credit 
our  correspondent  or  remit  direct  to  the  sender  according  to  direc- 
tions. In  case  the  collection  is  not  paid  and  is  protested,  immediate 
notice  is  given.  Of  sight  drafts  received  for  collection  we  make  no 
book  record.  The  letter  accompanying  the  collection  is  the  orig- 
inal and  only  entry  we  have.  After  presenting  the  draft  for  payment 
we  note  on  the  accompanying  letter  how  it  was  disposed  of — whether 
paid  or  returned.  If  paid  and  belonging  to  a  correspondent  it  is 
properly  credited.  If  it  does  not  come  from  a  correspondent  we 
remit  for  it  immediately,  so  noting  on  the  letter.  The  letter  is  then 
filed  as  a  history  of  the  transaction.  Our  letter-copying  book  fur- 
nishes a  history  of  all  collections  passing  through  our  hands." 

The  cashier  of  a  well  regulated  and  carefully  managed  country 
.bank  says: 


COUNTRY    BANKING.  147 

"Three  persons  do  all  the  work  in  our  bank.  The  president 
attends  to  the  correspondence  and  takes  charge  of  the  loans  and 
discounts.  I  perform  the  work  of  paying  and  receiving  tellers  and 
general  bookkeeper,  besides  the  ordinary  duties  of  cashier.  An  as- 
sistant keeps  the  customer's  ledger  and  helps  me  in  some  of  the 
details  about  the  other  books.  Our  loans  and  discounts  range 
from  one  hundred  and  fifty  thousand  to  two  hundred  thousand 
dollars.  The  depositors'  balances  are  in  the  aggregate  usually  not 
far  from  the  loans  and  discounts.  We  hold  readily  convertible 
stocks  and  bonds  to  the  amount  of  forty  thousand  to  sixty  thou- 
sand dollars.  Our  capital  is  two  hundred  thousand  and  circulation 
one  hundred  and  sixty-two  thousand.  Cash  on  hand  seldom  gets 
below  twenty  thousand  dollars,  and  our  surplus  is  fifty  thousand. 
The  net  profits  enable  us  to  pay  the  stockholders  seven  per  cent., 
and  we  generally  carry  two  or  three  per  cent,  to  the  surplus.  A 
dull  season  occasionally  cuts  our  dividends  down  to  half  the  usual 
amount.  We  have  run  so  close  that  no  dividends  were  declared 
for  a  year. 

"My  aim  in  the  routine  work  is  to  avoid  all  unnecessary  labor.  I 
use  as  few  books  as  possible.  A  few  years  ago  I  thought  a  huge 
journal  was  indispensable,  but  I  have  so  systematized  the  work  that 
I  now  have  no  use  for  it.  In  fact  I  have  not  used  a  journal  at  all 
for  more  than  a  year.  The  bookkeeping  is  done  in  such  a  manner 
that  I  can  make  up  a  verified  statement  of  our  condition  within  an 
hour  any  day  after  we  close.  Besides  the  general  ledger  I  keep  only 
the  ordinary  balance  ledger  for  depositors'  accounts.  In  this  I  also 
keep  the  accounts  of  banks  and  bankers.  The  accounts  in  the 
balance  ledger  are  arranged  alphabetically,  and  this  book  is  kept 
so  closely  posted  that  the  last  check  paid  and  last  deposit  made 
are  entered  up  within  a  few  minutes  after  the  bank  is  closed  for 
the  day.  We  have  only  a  few  depositors  who  draw  more  than  four 
or  five  checks  in  a  day  on  an  average.  For  these  special  cases  I 
provide  by  giving  their  account  a  double  space  in  the  balance  ledger. 
In  posting  the  checks  and  deposits  my  assistant  makes  his  entry 
direct  from  the  checks  and  deposit  slips.  As  the  entry  is  made  he 
marks  the  page  by  leaving  projecting  at  the  top  of  the  book  a 
narrow  strip  of  colored  paper.  This  enables  him  to  turn  at  once  to 
the  pages  on  which  changes  have  been  made  during  the  day.  These 
pages  are  footed,  and  the  footings  compared  with  the  columns  in 
my  cash  book,  headed  "  depositors'  debits  "  and  "  depositors' 
credits."  The  comparison  furnishes  a  proof  that  all  checks  and 
deposits  for  the  day  have  been  posted.  An  additional  test  comes 
when  the  balances  of  all  the  accounts  are  extended  for  the  next 
day  and  the  footings  compared  with  the  general  ledger  account 
of  "depositors"  after  the  totals  of  the  various  books  have  been 
posted.  I  do  not  enter  in  my  cash  the  names,  but  merely  the 


148  PRACTICAL   BANKING. 

amounts  of  debits  and  credits  belonging  to  the  depositors'  accounts.. 
After  the  work  has  been  proven  I  take  the  balance  ledger  and 
have  my  assistant  read  over  the  checks  and  I  compare  his  postings 
to  satisfy  myself  that  the  postings  are  all  properly  made.  When 
this  is  done  I  run  over  the  general  ledger,  the  postings  to  that  hav- 
ing been  made,  and  carry  the  balances  to  the  daily  balance  sheet. 
This  proves  the  entire  work  of  the  day." 

The  Daily  Balance  Sheet  is  a  device  for  proving  the  work  of  the 
bank  bookkeeper  and  for  preserving,  in  a  concise  and  regular  form, 
daily  statements  of  the  bank's  condition.  The  new  balances  are  ar- 
rived at  daily  thrpugh  debit  and  credit  differences.  The  illustration 
given  in  this  chapter,  though  not  a  complete  showing  of  all  the  ac- 
counts upon  the  specimen  pages  furnished  for  the  purpose,  will  serve 
to  demonstrate  the  principles  of  the  work.  For  example  in  explan- 
ation see  the  first  account,  viz.:  Loans  and  Discounts.  The  balance 
on  the  evening  of  August  15  was  167,15073.  The  following  day 
there  were  payments  in  excess  of  new  loans  and  discounts  to 
amount  of  311.44.  This  credit  difference  is  subtracted  from  the 
debit  balance,  leaving  the  new  debit  balance  166,839.29.  Again;  the 
balance  against  the  First  National  of  Philadelphia  on  the  evening 
of  August  15  is  40,737.31.  On  the  following  day  the  remittance 
to  that  bank  in  excess  of  credits  given  it  were  23,513.10.  The 
debtor  difference  is  added  to  the  debit  balance,  and  the  new  bal- 
ance is  64,250.41.  The  first  or  upper  line  of  footings  represent  the 
total  balances  of  banks  and  bankers'  accounts,  the  lower  line  of 
footings  are  the  proofs  or  trial  balance.  All  the  entries  in  this 
book  may  be  made  in  either  ink  or  pencil  as  may  be  desired. 
Ink  is,  of  course,  preferable,  but  as  they  form  only  an  auxiliary 
proof  and  leave  a  record  for  future  reference,  if  desired,  there  is 
no  special  objection  to  pencilings. 


GENERAL  LEDGER  ACCOUNTS  NOT  APPEARING  ON  ILLUSTRATION  OF 
DAILY  BALANCE  SHEET.    (See  opposite  page) 

Circulating  Notes  Received. 
Unpaid  Dividends. 
Certificates  of   Deposit. 
Cashier's  Checks. 
Remittances. 

f  Notes  of  this  Bank. 
Notes  of  other  National  Banks. 


Cash 


U.  S.  Legal  Tenders. 


Gold  Coin. 

Silver  $  Nickels  $ 

Treasurer  of  United  States. 
Comptroller  of  the  Currency. 
Suspense  Account. 


COUNTRY   BANKING. 


149 


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PART    II. 
SAVINGS    BANKS 


UTILITY  OF  SAVINGS  BANKS.  I$I 


CHAPTER  I. 
UTILITY   OP    SAVINGS   BANKS. 

This  class  differs  from  State  or  National  banks  in  that  they  have 
no  special  capital  owned  by  a  few  or  by  many  individuals,  but  their 
capital  is  the  deposited  money  of  a  great  many  saving  people. 
They  are  mutual.  That  is,  every  one  who  puts  money  in  is  prac- 
tically an  owner  in  the  bank,  and  the  profit  made  by  the  bank, 
after  paying  taxes  and  expenses,  and  putting  aside  a  proper  reserve, 
is  paid  to  the  parties  whose  money  earns  the  profit.  The  people, 
in  their  dimes  and  dollars  and  tens  and  hundreds,  own  the  Savings 
banks.  Hence  it  is  that  these  institutions  are  very  rigorously 
guarded  by  the  laws  of  our  States.  It  is  not  the  idea  of  a  Savings 
bank  to  pay  a  large  percentage  of  interest.  Safety  is  the  first  thing, 
and  in  order  to  be  safe,  only  choice  and  high-priced  investments 
can  be  purchased  by  the  managers. 

Savings  banks  are  voluntary  trusteeships,  undertaken  by  a  few 
persons  in  a  particular  locality,  either  self-appointed,  renewing  their 
own  number  as  vacancies  occur,  or  chosen  by  the  depositors.  The 
corporate  body  thus  formed  receives  deposits  or  funds,*  small  in 
amount,  and  from  the  poorer  classes  of  society.  It  undertakes  to 
invest  them  with  due  diligence  in  the  safest  practicable  way,  and  to 
divide  all  the  income,  after  paying  necessary  expenses,  among  the 
depositors,  at  stated  and  convenient  times.  None  of  the  profit  on 
these  investments  belongs  to  the  corporation  itself.  All  of  it  be- 
longs to  the  depositors.  If  a  surplus  is  created,  it  is  only  for  a 
safeguard  against  occasional  losses  or  emergencies.  In  every  re- 
spect, the  corporation  is  nothing  but  the  agent  or  trustee  of  the 
whole  body  of  depositors,  and  works  for  their  account  and  benefit^, 
not  for  its  own. 

"  The  principal  reason  for  the  creation  of  a  Savings  bank  is  to 
offer  to  the  poor  and  to  those  of  small  incomes  a  means  of  keeping 
safe  their  occasional  savings.  A  secondary  reason  is  to  enable  such 
persons,  by  combining  these  small  sums,  to  invest  them,  so  as  to 
earn  some  interest.  Such  persons  do  not  ordinarily  draw  out  their 
deposits,  except  on  an  emergency.  The  deposits  are  made  to  meet 
emergencies  in  the  private  life  of  the  depositors,  and  are  not  sub- 
ject to  the  daily  calls  of  business.  It  thus  appears  that,  as  such 


152  PRACTICAL    BANKING. 

emergencies  usually  result  from  sickness  or  lack  of  employment,  the 
drafts  will  be  gradual,  not  sudden,  and  are  not  subject  to  sudden 
increase  by  reason  of  commercial  revulsions,  unless  in  the  excep- 
tional case  of  panic.  Large  deposits,  which  do  not  come  from  sav- 
ings, but  which  are  the  capital  of  persons  who  have  acquired 
wealth,  should  be  rejected.*  They  can  invest  their  own  funds,  and 
they  are  likely  to  withdraw  their  deposits  suddenly  and  in  large 
sums." 

In  the  introductory  chapter  of  this  part  of  our  work  we  shall 
briefly  set  forth  the  utility  of  Savings  banks.  This,  however,  has 
been  well  done  by  another,  Henry  L.  Lamb,  and  we  cannot  improve 
on  what  he  has  said  concerning  the  utility  of  these  institutions. 
His  paper  was  read  at  an  annual  meeting  of  the  American  Bank- 
ers' Association  in  1879,  when  he  was  acting  as  superintendent  of  the 
banking  department  of  the  State  of  New  York. 

First. — The  savings  institution  is  founded  to  help  men  and 
women. 

Some  one  has  said  that  they  are  meant  "to  help  men  to  help 
themselves."  It  is  not  in  simple  human  nature  to  save  and  to  put 
by  a  store  for  the  ever  possible  rainy  day.  The  savage  and  the 
child  go  on  in  reckless  improvidence.  Some  one  must  take  care 
of  the  improvident,  as  society  is  organized  now  in  the  enlightened 
nations.  There  are  saving  people  and  spending  people.  There  are 
people  who  create  property  and  people  who  waste  it.  There  are 
people  who  earn  money  and  keep  it,  and  people,  too,  who  earn 
money  and  squander  it.  This  is  inevitable.  By  and  by  the  spend- 

*  "  Certainly,  the  use  of  these  institutions  should  be  confined  to  the  class  for  wkose 
benefit  they  were  devised,  and  only  that  class  who  have  not  the  time,  opportunity,  or 
ability  to  investigate  and  determine  for  themselves  a  proper  investment  or  adequate  means  to 
enable  them  to  pay  for  the  information  through  private  sources,  should  be  permitted  to  be- 
come depositors. 

In  case  of  temporary  embarrassment,  the  largest  deposits,  those  belonging  to  what  may 
be  properly  termed  a  capitalist  class,  would  be  soonest  withdrawn,  and  whenever  private 
investment  promises  better  returns  these  funds  leave  the  banks.  Whenever  money  is  cheap 
and  hard  to  place,  this  class  solves  the  difficulties  of  investment  by  placing  their  moneys 
in  our  Savings  banks.  Instead  of  supporting  the  banks,  they  make  of  them  a  convenience, 
and  prey  upon  their  resources ;  instead  of  being  an  element  of  strength,  they  are  a  constant 
menace. 

Most  States  recognize  this  principle,  and  have  fixed  limitations  designed  to  exclude  this 
class  of  depositors.  Instance  :  Connecticut  limits  amounts  receivable  in  any  one  year 
from  a  single  individual  to  $1,000.  Vermont  limits  the  aggregate  to  #2,000.  New  York 
limits  the  aggregate  to  $  3,000.  Massachusetts  limits  deposits  to  £  1,000  from  each  indi- 
vidual, and  allows  it,  by  accumulation  of  interest,  to  reach  $  1,600,  but  allows  no  dividend 
upon  any  sum  exceeding  $  1,600.  Each  of  these  States  makes  varying  exceptions  as  to  trust 
<unds,  &c. 

Recently,  while  examining  a  discount  bank,  I  found  twelve  pass  books  from  several  dif- 
ferent banks,  and  in.  four  different  names,  but  all  belonging  to  the  same  individual,  calling 
for  sums  aggregatfng  $  28,000,  put  up  as  collaterals  for  a  loan.  While  this  shows  that  any 
law  is  liable  to  evasion,  it  emphasizes  the  necessity  for  specific  regulations  as  to  the  re- 
ception of  deposits  — Extract  from  address  of  A.  B.  Hepburn,  Bank  Superintendent  of 
Ntw  York,  at  the  American  Bankers'  Association  in  1882. 


UTILITY   OF  SAVINGS   BANKS.  153 

thrift  has  run  his  life,  and  comes  in  poverty  and  need  to  his 
brother  and  asks  for  support.  Misfortune  may  follow  the  prudent 
and  bring  them,  by  unexpected  reverses,  to  want.  In  the  artificial 
conditions  which  our  civilization  creates,  the  demands  of  the  needy 
are  greater  than  they  were  in  primitive  conditions  of  living.  Such 
demands  as  these  meet  the  intensely  practical  mind  to-day,  just  as 
they  do  that  of  the  philanthropic.  So  they  did  a  hundred  years 
ago. 

When  a  great  want  is  felt  in  the  world  a  host  of  men  begin  to 
try  to  solve  the  problem  to  satisfy  the  want.  Great  inventions  then 
seem  to  be  contemporaneously  made  by  different  men.  This  very 
question  of  dealing  with  simple  men  and  women,  of  taking  care  of 
the  humble  who  had  no  estates,  of  taking  care  of  the  poor  who 
come  to  want  by  improvidence  or  by  misfortune,  appears  to  have 
received  the  studious  notice  of  the  economist  and  philanthropist 
at  the  same  time.  While  Jeremy  Bentham  and  Malthus  enforced 
the  benefits  of  providence  and  savings  in  the  interests  of  the  great 
body  of  the  people  as  well  as  of  those  who  saved,  about  the  open- 
ing of  this  century  an  English  clergyman  and  a  Scotch  minister, 
each  in  his  own  parish,  set  in  operation  a  plan  for  his  parishioners 
to  save  money,  which  embodies  in  substance  the  fundamental  prin- 
ciple of  the  savings  institution.  Contemporaneously,  a  woman,  Mrs. 
Priscilla  Wakefield,  established  such  an  organization  in  England. 
Similar  ideas  also  were  advanced  at  the  same  period  by  a  London 
magistrate,  Patrick  Colquhoun,  who  wrote  upon  the  question  of 
popular  indigence  and  measures  for  its  relief  as  early  as  1806. 

In  America,  in  1816  and  1817,  the  needs  and  the  claims  of  the 
poor  awakened  attention  at  Boston  and  New  York,  and  thought  was 
immediately  directed  towards  the  savings  institution,  because  it  was 
deemed  most  helpful.  At  Boston,  in  1816,  it  was  proposed  "to 
form  an  institution  for  the  security  and  improvement  of  the  sav- 
ings of  persons  in  humble  life  until  required  by  their  wants  and 
desires." 

The  first  Savings  bank  in  the  State  of  New  York  seems  to  be 
the  direct  result  of  a  meeting  of  citizens  at  the  New  York  Hospi- 
tal on  December  16,  1817,  to  take  into  consideration  the  subject  of 
pauperism.  A  society  was  there  formed  for  the  prevention  of  pau- 
perism. A  committee  was  then  appointed  to  report  on  the  prevail- 
ing causes  of  poverty.  The  report  recites,  among  other  causes,  that 
"Prodigality  is  comparative  among  the  poor;  it  prevails  to  a  great 
extent  in  inattention  to  those  small  but  frequent  savings  when  labor 
is  plentiful  which  may  go  to  meet  privation  in  unfavorable  seasons." 
When  the  constitution  of  this  society  was  drafted  it  declared  that 
one  prime  purpose  of  the  organization  should  be  "to  hold  out  in- 
ducements to  those  people  to  economy  and  saving  from  the  fruits 
of  their  own  industry  in  seasons  of  great  abundance."  The  earnest- 


154  PRACTICAL    BANKING. 

ness  of  the  men  who  were  members  of  this  organization  is  proved 
in  the  passage  of  an  act,  upon  their  petitition,  by  the  Legislature 
of  1819,  for  the  incorporation  of  the  Bank  for  Savings.  In  each  of 
the  two  years  thereafter  a  Savings  bank  was  incorporated  in  this 
State. 

Second. — The  savings  institution  is  not  organized  to   make   money. 

Right  here  it  is  wholly  different  from  the  discount  bank  in  motive 
and  aim.  The  Savings  bank  receives  money  chiefly  to  keep  it  se- 
curely for  the  benefit  of  the  depositors.  The  ordinary  bank  per- 
forms some  service  for  such  as  need  it  in  business,  and  justly  is 
paid  for  such  service.  The  aim  of  the  bank  is  profit — gain  upon 
the  capital  which  is  employed  in  the  work.  The  savings  institution 
seeks  to  serve  those  who  are  not  fitted  by  knowledge  and  habit 
for  safely  keeping  and  investing  their  money  when  saved.  The  dis- 
count bank  is  equipped  with  money,  with  skill  in  business,  with 
acquaintance  with  monetary  affairs,  and  offers-  to  the  busy  managers 
of  commerce  and  trade  its  aid  in  making  exchanges  and  in  all  their 
operations  which  require  its  assistance.  The  savings  bank  opens 
its  doors  to  savers ;  it  receives  and  permanently  invests  money. 
The  bank  opens  its  doors  to  borrowers  and  users  of  money,  for 
pay.  One  serves  by  receiving  and  keeping,  the  other  serves  by  lend- 
ing. One  aims  at  profit,  the  other  never  makes  profit  an  end ;  the 
Savings  institution  is  a  receiving  reservoir  from  little  springs ;  the 
bank  is  a  distributing  reservoir  of  accumulated  capital. 

There  ought  to  be,  therefore,  no  antagonism  between  the  Savings 
bank  and  the  bank.  If  the  Savings  bank  is  kept  to  its  original 
idea,  as  it  should  be,  it  will  not  encroach  on  the  domain  of  the 
bank,  and  the  last  will  by  no  means  come  in  conflict  with  the 
Savings  bank.  The  time  has  been  when  men  had  the  idea  that  the 
best  way  to  get  on  in  the  world  was  to  rob  each  other.  Juster 
ideas  than  that  now  prevail.  The  Savings  institution  is  a  concep- 
tion which  demonstrates  this  truth.  It  is  the  reverse  of  the  com- 
munistic notion  recently  prevalent.  The  communist  proposes  the 
division  of  capital,  the  drone  to  share  with  the  worker  in  the  ac- 
cumulation of  his  production.  The  Savings  institution  aims  at  mak- 
ing all  men  producers  and  savers  too,  It  offers  the  aid  of  the 
strong,  who  can  manage  well,  to  the  weak,  to  receive  their  small 
gains  and  hold  them  securely  against  that  time  when  need  or  de- 
sire may  require  the  store  for  prudent  use.  The  Savings  institution 
enlarges  the  number  of  capitalists ;  it  reduces  the  army  of  possible 
prodigals,  paupers  and  tramps.  The  communist  is  the  enemy  of 
capital,  for  he  proposes  to  rob  the  man  who  has  money.  The 
Savings-bank  depositor  is  himself  an  owner  of  money.  He  belongs 
to  the  conservatives  by  the  logical  tendency  of  his  position.  In 
this  land,  where  there  is  such  room  for  growth,  such  demand  for 
money,  such  room  for  men  of  the  right  stamp,  the  Savings  institu- 


UTILITY   OF   SAVINGS   BANKS.  155 

tion  is  an  educator,  is  the  friend  of  capital,  of  order  and  stability, 
both  political  and  social.  Whoever  earns  and  saves,  lengthens  con- 
tinuously his  arms  for  service.  Whoever  earns  and  spends  as  he 
goes  does  not  lengthen  his  arms,  but  shortens  his  legs  for  running 
his  race  in  life.  While  the  Savings  bank  is  not  organized  to  make 
money  it  is  most  profitable  in  several  ways.  It  accumulates  money; 
it  inspires  and  trains  men  to  get  money  and  to  the  wise  use  of 
it;  it  spares  those  who  have  capital  from  charges  upon  it  for  the 
support  of  those  who  might  otherwise  become  poor;  it  makes 
better  men  and  families  and  better  citizens;  it  adds  to  the  sum  of 
National  resources  in  money,  and  adds  to  the  means  for  advance- 
ment in  material  improvement.  It  is  thus  a  many-sided  benefaction 
— to  those  out  of  it,  as  well  as  to  those  in  it. 

Third. — The    Savings  institution   does   not  hoard   money. 

Some  men  object  to  the  Savings  institution  because  it  withholds 
money  from  circulation.  This  is  an  obvious  fallacy.  If  the  de- 
positors in  such  institutions  were  to  save  an  amount  of  money  as 
large  as  they  deposit,  a  great  part  of  it  would  be  hoarded.  All 
who  have  acquaintance  with  Savings  banks  know  this.  If  a  panic 
comes  upon  the  depositors  in  one  institution,  or  in  several,  and 
money  is  drawn  in  large  sums,  much  of  it  is  hoarded  and  much  of 
it  is  squandered.  After  the  fright  is  over  the  identical  money  that 
was  withdrawn  and  kept  is  often  returned  for  deposit  months  after 
withdrawal.  This  demonstration  of  the  disposition  of  saving  men 
to  hoard  is  always  made  under  these  conditions.  The  Savings  bank 
encourages  the  habit  of  saving.  Many  of  you,  I  have  no  doubt, 
were  born  and  bred  as  boys  on  farms.  You  may  still  recollect  the 
eager  hunt  for  hens'  nests  in  the  hay  mows,  bays  and  scaffolds  of 
the  old  weather-stained  barns ;  you  will  recollect,  too,  perhaps,  that 
the  nests  require  the  invitation  of  a  "  nest  egg "  to  coax  the  fe- 
cund fowl  to  make  her  diurnal  deposit  in  it.  I  think  that  men 
need  such  solicitation,  too.  The  man  who  is  profligate  while  he 
has  nothing  to  "lay  to,"  will  often  become  stingily  saving  when  he 
has  a  "nest  egg"  to  win  him  from  other  temptations.  Those  who 
can  do  this,  and  would  otherwise  lay  their  gains  in  stockings,  pre- 
fer the  Savings  bank,  for  money  there  makes  money,  which  this 
class  of  men  are  quick  to  see. 

The  Savings  bank 'invests  its  money.  Its  managers  are,  in  theory, 
intelligent  men,  competent  to  make  safe  investments  in  solid  secu- 
rities. The  genuine  Savings  bank  is  conservative,  and  does  not  en- 
courage speculation,  ballooning,  and  failure  with  disaster.  It  puts 
money  into  circulation,  and  does  not  withhold  it.  It  adds  substan- 
tially to  the  sum  of  active  capital  in  the  country,  which  is  not 
less  useful  because  it  is  permanently  invested.  These  little  savings, 
when  gathered  into  masses  and  discreetly  invested,  serve  great  pur- 
poses. As  the  tiny  streams  which  trickle  from  hidden  springs  upon 


156  PRACTICAL    BANKING. 

remote  hill  sides  flow  together  and  make  the  willing  power  to  turn 
mill  wheels,  or  to  furnish  the  water  for  the  thirsty  people  of  a  great 
city,  so  these  savings  of  humble  people  and  of  small  owners,  when 
aggregated,  become  available  to  build  the  mills,  or  to  buy  the 
wheels  for  the  mills,  or  to  lay  the  pipes  to  convey  the  water  to  the 
thirsty  town,  or  to  help  the  thrifty  saver  to  rear  his  own  house,  or 
to  aid  the  State  itself  when  its  financial  burdens  are  too  great  to 
be  discharged  at  once. 

Fourth. — Why  should  any  man  become  the  manager  of  a  Savings 
bank  ? 

I  have  been  asked  this  question  often.  The  trustee  cannot  be 
paid.  Why  should  a  man  do  anything  that  will  not  pay  him  ?  I 
hope  I  have  given  some  reasons  why  a  Savings  bank  does  pay  the 
community  in  which  it  is  placed.  No  man  with  capital  can  turn 
a  deaf  ear  to  the  promise  to  save  that  capital  from  the  moth  and 
rust  of  taxation.  You  know  that  now.  A  host  of  Savings-bank  de- 
positors is  a  better  class  of  citizens  than  an  army  of  tramps.  The 
self-sustaining  person,  who  is  self-respecting,  too,  is  a  safer  neigh- 
bor than  the  vicious  drone  or  the  indolent  beggar.  The  Savings 
bank  is  not  a  pauperizing  charity.  But  it  is  a  school,  teaching  the 
sound  lessons  of  self-denial,  of  economy,  and  of  sober  industry. 
Ill  fares  the  land,  to  Hastening  ills  a  prey, 
Where  wealth  accumulates  and  men  decay, 

says  the  poet. 

But  if  wealth  accumulates,  and  men  and  women  grow  stronger 
by  its  possession,  and  better  in  character  and  aspiration  by  the 
habits  of  saving,  happy  is  the  land  where  they  dwell.  There  is  no 
man  who  has  capital,  who  is  acquiring  capital,  that  has  not,  in 
fact,  an  interest  in  the  success  of  Savings  banks,  though  he  may  not 
have  seen  this  or  felt  it.  You,  gentlemen,  give  freely  to  support 
churches ;  you  pay  taxes  to  maintain  schools,  to  watch  criminals, 
to  punish  the  bad.  These  things  cost  you  money,  and  a  good 
round  sum,  too.  Have  not  you,  has  not  every  man  who  can  do  it, 
an  interest  in  these  institutions,  which  are  saving  in  many  senses  ? 

Their  great  success  will  spare  your  own  pockets;  their  great  suc- 
cess will  add  to  the  total  of  the  resources  which  can  find  profit- 
able employment  in  this  land;  their  great  success  will  breed  a  class 
of  people  of  moderate  means,  who  will  look  up  in  the  world,  and 
not  down.  Why  should  not  any  man,  every  man,  indeed,  who  has 
the  capacity  for  the  work,  lend  something  of  his  time,  something 
of  his  judgment  and  knowledge,  to  the  people  that  need  them  ? 
He  shall  lend  not  chiefly  for  the  sake  of  the  borrower  of  such  ser- 
vices, but  for  his  own  sake.  I  put  it  upon  the  last  ground  that 
the  wisest  self-interest  of  every  man  of  substance  will  dictate  his 
support  of  Savings  banks  in  which  he  is  a  shareholder  just  so  long 
as  he  has  any  relations  with  other  men  and  is  a  citizen  bearing  the 
tax  burdens  of  a  citizen. 


UTILITY  OF    SAVINGS   BANKS.  157 

Fifth. — The  Savings  bank  is  one  of  the  best  safeguards  of  property. 

Trustee  service  is  more  agreeable  than  jury  duty.  Personal  atten- 
tion in  a  Savings  bank  is  more  economical  than  constables,  police, 
poonnasters,  hospitals,  prisons. 

It  is  sure  that  the  three-quarters  of  a  million  of  depositors  in 
Savings  banks  in  this  imperial  State  are  arrayed  as  a  solid  phalanx 
against  communism,  rioting  and  disorder.  The  facts  are  too  sig- 
nificant to  be  disregarded  by  intelligent  men.  Ireland,  Germany  and 
Russia  to-day  should  admonish  the  American  citizen,  who  has  prop- 
erty, and  who  is  a  leader  in  business  and  in  politics,  that  security 
and  progress  will  be  found  in  the  diffusion  of  property  among  the 
great  body  of  people,  by  training  them  to  its  acquisition  and  main- 
tenance. The  Savings  bank  is  a  fortress  which  resists  the  danger- 
ous classes.  It  is  garrisoned  by  men  who  stand  actually  for  their 
altars  and  their  fires  on  their  own  hearthstones.  Who  of  you  has 
not  a  personal  interest  in  this  army,  which  is  perfectly  loyal  always, 
and  which  is  not  the  consumer  of  your  goods,  but  is  itself  a  con- 
stant producer  and  saver,  as  well  as  guardian  ? 

The  real  Savings  bank  in  our  country  has  done  great  good.  It 
can  come  nearer  in  practice  to  the  ideal.  It  contains  infinite 
possibilities  to  this  teeming  land  for  future  beneficence  as  respects 
depositors,  and  safety  and  advantage  in  respect  to  other  men  with 
capital.  To  bring  these  institutions,  which  save  money  and  save 
men,  at  once,  up  to  a  higher  standard  of  excellence  in  administra- 
tion and  to  a  higher  degree  of  utility  and  results  and  influence, 
only  demands  the  moderate  attention  and  service  of  thoroughly 
practical  men.  The  Savings  institution  is  benevolent  on  one  side, 
but  it  is  a  business  enterprise  at  bottom,  and  must  be  conducted 
on  business  principles.  When  it  is  so  conducted  it  is  one  of  the 
most  profitable  investments  that  can  be  established.  It  does  not 
pay  the  honest  manager  in  dividends  and  salaries,  but  it  saves  him 
a  vast  deal  now,  and  will  save  his  children  after  him  a  vast  deal 
more,  and  will  pay  for  all  the  service  which  he  can  give  it. 


PRACTICAL    BANKING. 


CHAPTER  II. 
JANITOB. 

In  order  to  give  the  reader  as  clear  an  idea  as  possible  of  the 
interior  workings  of  the  modern  Savings  bank,  we  will  describe  the 
functions  and  the  daily  routine  of  each  person  connected  with  one 
of  these  institutions.  We  will  begin  with  the  janitor. 

Since  seven  o'clock,  when  he  relieved  the  night  watchman,  this 
humble,  but  important  functionary  has  been  preparing  the  bank  for 
the  business  of  the  day.  He  has  swept  and  dusted  the  banking 
room,  seen  that  the  ink,  pens  and  other  appliances  were  provided, 
and  has  stamped  with  the  proper  date  the  books  and  documents 
representing  the  business  of  the  previous  day.  The  tickets,  when 
made  out  by  the  clerks,  are  purposely  left  undated;  when  made  out 
by  the  depositors  there  are  sometimes  errors  or  discrepancies  in  the 
date,  therefore  this  stamping  gives  the  official  date  of  their  passing 
through  the  books. 

At  the  opening  of  the  bank  at  nine  o'clock,  the  next  duty  of 
the  janitor  will  be  to  arrange  the  many  account  books  in  their 
proper  places  for  the  business  of  the  day.  During  the  active  busi- 
ness hours  he  sees  that  persons  wishing  to  do  business  are  directed 
to  the  proper  department  of  the  bank,  he  attends  to  any  calls  or 
messages  between  those  departments  or  outside  of  the  bank,  he 
carries  the  deposits  to  the  deposit  banks,  he  copies  letters  or 
places  them  in  the  files,  sees  that  the  doors  are  opened  and  closed 
at  the  proper  hours.  These  hours  are  from  ten  to  three  daily,  but 
on  Mondays  and  Saturdays  the  closing  hour  is  seven  P.  M. 

Between  nine  and  half-past  the  members  of  the  executive  staff 
of  the  bank  begin  to  arrive.  The  treasurer,  the  secretary,  the  pay- 
ing teller,  the  receiving  teller  and  the  bookkeepers.  The  duties  of 
these  officials  will  be  described  in  order,  but  first,  we  will  consider 
the  person  for  whose  benefit  and  on  whose  behalf  they  are  acting 
in  every  official  transaction  of  the  day,  namely,  the  depositor. 


THE  DEPOSITOR.  159 


CHAPTER  III. 
THE    DEPOSITOR. 

As  a  convenient,  though  perhaps  unfamiliar  name,  we  will  call 
our  typical  depositor  John  Smith.  John  Smith  arrives  at  the  bank 
soon  after  its  opening  on  the  day  in  question,  having  in  his  pos- 
session $  i,  which,  contrary  to  the  usual  desires  of  mankind,  he  is 
anxious  to  part  with.  He  proposes  to  relinquish  the  possession  of 
this  dollar  for  an  indefinite  time  and  to  place  it  in  the  custody  of 
the  bank.  Now,  what  are  John  Smith's  motives  in  this  eccentric 
conduct  ? 

First. — He  thinks  that  the  dollar  out  of  his  hands  will  be  less 
likely  to  be  uselessly  spent  than  in  his  hands,  which  is  incon- 
testable. 

Second. — He  thinks  that  the  dollar  out  of  his  hands  will  be  less 
likely  to  be  lost  or  destroyed  than  if  in  his  possession. 

Third. — He  believes  that,  aggregated  with  a  great  many  thousand 
other  dollars  belonging  to  other  depositors,  this  dollar  of  his  will 
possess  an  earning  power  which,  in  his  pocket,  it  would  entirely 
lack.  These  homely  thoughts  of  John  Smith  represent  or  convey 
the  Savings  banks'  reason  for  existence.  Their  object  is  three-fold. 
To  prevent  waste,  to  prevent  loss,  to  give  profit. 

Again,  taking  up  the  practical  operations  of  John  Smith's  case, 
we  will  suppose  that  this  is  his  first  attempt  at  saving.  As  he 
comes  into  the  bank,  if  intelligent,  he  will  look  about  him,  and 
see  a  very  plainly  expressed  printed  notice,  headed,  "how  to  open 
an  account."  If  unintelligent,  or  uneducated,  he  will  probably 
apply  to  the  janitor  as  a  guide,  philosopher  and  friend,  who  shall 
give  him  the  necessary  information  for  becoming  a  member  of  the 
numerous  partnership,  which  owns  the  handsome  building  in  which 
he  stands,  and  all  its  contents.  Following  the  directions  of  the 
notice  referred  to,  he  goes  to  one  of  the  tables  or  desks  on  which 
are  writing  materials  and  all  the  necessary  blank  forms,  takes  a 
deposit  ticket,  which  is  printed  on  green  paper  to  make  it  easily 
distinguishable,  and  writes, 

First,  the  amount  of  his  proposed  investment ;  second,  his  name ; 
third,  his  address,  and  lastly,  the  date. 

It    is    not    usual    in  Savings  banks,   in  general,  that    the  tickets, 


l6o  PRACTICAL   BANKING. 

either  for  drawing  or  depositing,  should  be  made  out  by  the 
depositor.  This  bank  finds  it  in  every  respect  preferable  so  to  do. 
The  average  style  of  writing  is  better  than  would  probably  be  the 
case  if  made  out  by  a  clerk  working  rapidly,  because  each  de- 
positor naturally  takes  pains  with  his  own  ticket.  There  is  the 
further  great  advantage  that  we  have  his  evidence  as  to  the  amount 
and  circumstances  in  case  of  future  dispute.  It  is  too  much  the 
practice  in  Savings  banks  to  assume  that  the  depositor  is  unedu- 
cated and  ignorant.  The  writer  once  mentioned  this  idea  of  tickets 
made  out  by  the  depositors  themselves  in  the  largest  of  our  Sav- 
ings banks,  and  was  answered,  "  well  one  out  of  every  three  of  our 
depositors  is  unable  to  write."  He  inquired  whether  this  propor- 
tion was  obtained  by  actual  count  or  by  guess.  On  being  informed 
that  it  was  merely  a  guess,  he  suggested  that  a  count  be  made  of 
a  few  pages  of  the  signature  book,  and  it  was  found  that  the  pro- 
portion was  one  in  nineteen;  that  is,  eighteen  able  to  write,  to 
one  who  is  obliged  to  make  a  cross.  In  our  bank  the  proportion 
is  about  one  to  twenty.  It  is  found  also  that  the  depositors, 
when  once  accustomed  to  this  more  dignified  way  of  doing  busi- 
ness, far  prefer  it.  They  feel  as  if  they  were  treated  with  more 
respect,  not  as  inferiors  or  subjects  of  charity,  and  finally  there  is 
a  great  saving  of  time  and  error  for  the  receiving  teller. 

This  he  carries  to  the  window  occupied  by  the  receiving  teller. 
He  hands  the  ticket  and  the  dollar  to  that  official,  and  also  names 
the  amount  aloud,  "  one  dollar,"  or  if  English  be  not  his  native 
language,  he  is  perfectly  at  liberty  to  say  "  ein  thaler,"  "un  dollard," 
"  uno  scudo,"  "  un  peso,"  or  whatever  equivalent  expression  in  his 
own  vernacular  may  signify  his  intent.  Now  the  functions  of  the 
receiving  teller  begin,  and  Smith  is  only  informed  that  he  must 
next  step  to  the  signature  desk.  Here  lies  a  large  book  on  a  re- 
volving desk,  and,  like  a  guest  in  a  hotel,  he  is  requested  to  write 
his  name  and  address,  or  if  unable  to  write,  his  name  is  written 
for  him,  and  he  makes  his  mark,  but  instead  of  getting  the  number 
of  his  room,  the  number  of  his  pass  book  is  printed  opposite  the 
line  on  which  he  writes.  The  clerk,  whom  he  now  sees,  obtains 
from  him,  besides  his  name  and  address,  the  following  information  : 
Where  do  you  live?  What  is  your  age?  Are  you  married,  single, 
or  a  widower?  Are  you  colored  ?  What  is,  or  was,  your  father's 
name?  Mother's  name?  Wife's  name?  Occupation? 

The  particular  points  of  information  obtained  from  the  de- 
positor vary  in  different  banks.  The  place  of  nativity  is  taken 
by  some,  and  this  would  seem  an  excellent  test  of  identity.  The 
color  of  the  eye,  as  being  the  one  bodily  characteristic  which  is 
unchangeable,  is  also  taken  by  some  institutions.  Perhaps  in  the 
future  photography  may  come  to  our  aid,  and  instantaneous  photo- 
graphs of  small  size  be  taken  on  the  occasion  of  the  first  deposit. 


THE  DEPOSITOR.  l6l 

The  entries  in  the  signature  book  having  been  made,  the  clerk 
again  asks  Mr.  Smith  "how  much  money  did  you  deposit?"  and  on 
being  answered  correctly  hands  him  the  pass  book. 

This  pass  book  has  stamped  upon  it,  both  on  the  outside  and 
inside,  the  same  number  which  stands  opposite  the  depositor's 
name  in  the  signature  book,  and  this  number  will  hereafter  be  the 
key  to  all  the  dealings  of  Mr.  Smith  with  the  bank.  It  is  written 
on  the  deposit  ticket,  it  is  written  opposite  the  first  entry  in  the 
books  of  the  bank,  it  stands  at  the  head  of  his  ledger  account, 
(page  164.)  These  consecutive  numbers  are  printed  wherever  they 
possibly  can  be,  to  avoid  mistakes,  but  as  Smith  will  very  prob- 
ably forget  the  number  of  his  book,  especially  if  he  is  a  careless 
person,  and  loses  the  book,  it  is  necessary  somewhere  to  be  able 
to  find  him  by  name.  Therefore,  the  signature  clerk  has  one  more 
duty  to  perform  in  connection  with  Smith's  account.  Lying  op- 
posite him  is  a  pile  of  cards  about  one  inch  by  three.  On  the 
top  one  of  these,  which  contains  Smith's  number,  the  signature 
clerk  writes  very,  plainly  John  Smith.  This,  as  will  be  seen  after- 
wards, serves  as  an  entry  in  the  alphabetical  index. 

When  next  Mr.  Smith  has  any  sum  of  money  to  deposit,  he 
will  make  out  and  sign  his  deposit  ticket  as  before,  except  that 
he  now  knows  the  number  of  his  book,  and  will  insert  that  in 
the  proper  place.  Perhaps  he  will  find  several  other  customers 
awaiting  their  turn  at  the  receiving  teller's  window.  In  this  case, 
he  must  fall  in  at  the  end  of  the  line  in  proper  order.  But 
Smith  will  not  go  on  depositing  forever.  His  deposit  of  savings 
has  only  half  performed  its  mission  while  it  is  lying  in  bank. 
Ultimately  it  is  to  be  used.  When  Smith  has  become  sufficient 
of  a  capitalist  to  invest  his  money  at  his  own  discretion,  then  he 
will  wish  to  withdraw  his  accumulations.  But  frequently  before 
that  time  he  wearies  of  well  doing,  or  he  miscalculates  the  amount 
which  he  can  spare  from  his  current  expenditure,  and  it  is  neces- 
sary for  him  to  withdraw  a  portion,  or  the  whole ;  or  this  neces- 
sity may  be  caused  by  removal,  by  calamity,  by  sickness,  or  by 
death.  In  this  case  he  finds  his  way  to  the  paying  teller's  window, 
having  first  filled  out  a  ticket  of  another  form,  the  draft  ticket. 
This  he  presents  (see  p.  164  for  form),  and  again  names  the  sum  to  be 
withdrawn.  After  proper  scrutiny,  which  will  be  described  under 
the  paying  teller's  duties,  his  book  is  handed  to  him  again,  and 
between  its  leaves,  instead  of  the  draft  ticket,  is  the  money  de- 
sired. If  this  exhausts  his  account,  the  form  called  a  closing  draft 
is  used.  In  this  case,  the  pass-book  is  surrendered,  and  is  filed 
away  according  to  its  numerical  order.  But,  if  Mr.  Smith  continues 
his  deposits  for  a  sufficient  length  of  time,  he  will  be  entitled  to 
his  share  of  the  earnings.  Any  amount  over  $  5,  participates  in  the 
profits  of  the  concern.  It  is  considered  that  the  use  of  any  sum. 


l62  PRACTICAL   BANKING. 

less  than  that  does  not  more  than  pay  for  stationery  and  labor. 
Semi-annually,  a  few  days  after  the  first  of  January,  and  a  few 
days  after  the  first  of  July,  the  book  may  be  presented  for  the 
purpose  of  entering  therein  the  dividends  to  which  he  is  entitled, 
In  the  majority  of  cases,  Smith  takes  it  for  granted  that  the  cal- 
culation of  this  dividend  is  correct,  though  occasionally,  he  scru- 
tinizes it  very  carefully. 

The  conditions  of  this  dividend  in  many  institutions,  are  these: — 
Deposits  begin  to  participate  in  the  dividend  on  the  first  day  of 
each  quarter,  but  they  only  are  entitled  to  it  if  they  remain  till 
the  end  of  the  half  year;  thus,  money  which  is  in  bank  on  the 
first  day  of  January,  provided  it  remains  until  the  first  day  of 
July,  receives  a  half  year's  dividend,  but  if  withdrawn,  even  during 
June,  receives  nothing.  If  in  bank  on  the  first  of  April,  and  re- 
maining until  the  first  of  July  untouched,  it  draws  a  quarter's 
dividend.  Furthermore,  the  first  few  days  of-  each  quarter,  may  be 
allowed  to  the  depositor  as  a  sort  of  grace,  the  limit  being  10  days, 
at  the  half-year,  and  three  days  at  the  quarter. 

The  dividend  is  now  usually  spoken  of  as  interest.  As  the 
rate  in  the  State  of  New  York  is  not  promised  in  advance, 
but  depends  upon  the  profits  of  the  half  year,  the  term  dividend, 
is  considered  more  proper,  but  considering  that  it  depends  on  the 
time,  it  is  in  that  respect,  strictly  speaking,  interest.  The  word  in- 
terest-dividend would  seem  to  be  the  most  exact. 

A  few  banks  in  New  York  allow  interest  to  begin  on  the 
first  day  of  each  month,  instead  of  the  first  day  of  each  quarter, 
but  with  the  same  provision  as  to  forfeiture  in  case  of  withdrawal 
before  the  end  of  the  half  year.  In  Pennsylvania,  in  some  parts 
of  New  England,  and  in  Great  Britain,  money  bears  interest  for 
every  full  calendar  month  during  which  it  has  remained  undis- 
turbed, and  is  credited  only  once  a  year,  unless  the  account  is 
closed. 

The  current  rate  at  present  (1884)  is  wavering  between  four 
per  cent,  and  three  per  cent.  Ten  years  ago,  the  current  rate 
for  Savings  deposits  was  six  per  cent.,  but  the  general  investment 
rate  has  greatly  lowered.  Some  banks  make  a  distinction  in  rate 
for  different  amounts.  For  example,  four  per  cent,  on  amounts  not 
exceeding  $  1000,  and  three  per  cent,  on  any  excess  over  $  1000.  Or 
on  another  plan,  less  than  $500  receives  four  per  cent.,  but  if  the 
whole  deposit  exceed  $500,  only  three  per  cent,  is  paid  on  the 
whole.  On  this  manifestly  unjust  plan,  a  depositor  whose  book  has 
amounted  to  $501,  receives  absolutely  less  of  the  profits,  than  he 
whose  aggregate  is  only  $499.  It  would  be  better  to  preserve  rig- 
orously a  limit  as  to  the  maximum  which  any  depositor  shall  ac- 
cumulate, or  which  he  shall  deposit  in  a  given  period,  and  then 
divide  the  profits  pro  rata,  on  all  sums. 


THE    DEPOSITOR.  163 

If  interest  is  not  withdrawn,  it  will  itself  draw  interest  as  a  de- 
posit. The  more  ignorant  depositors,  however,  frequently  desire  to 
draw  their  interest,  even  if  they  immediately  re-deposit  it,  forfeit- 
ing thereby  a  quarter's  interest  on  it.  Their  intellect  in  money 
matters  has  not  yet  been  sufficiently  developed  for  them  to  grasp 
the  idea  that  there  can  be  an  increase  of  money  value,  without  a 
visible  amount  or  representative  having  touched  their  hands. 

Besides  the  individual  deposit  which  John  Smith  or  Mary  Smith 
may  have  made  in  their  own  names,  there  are  various  other  forms. 
Frequently,  money  is  deposited  "John  Smith,  in  trust  for  William 
Jones,"  or  "John  Smith,  Trustee  for  William  Jones."  Often  this 
trust  is  to  some  extent  a  fiction,  the  legal  effect  of  which  is  that, 
upon  the  death  of  Smith,  Jones  will  receive  the  deposit  without 
the  formalities  and  expense  of  administration.  Frequently,  also,  it 
is  intended  as  an  evasion  of  that  rule  which  makes  a  different  rate 
of  interest  for  higher  sums.  The  thrifty  John  Smith  will  have  the 
maximum  amount  in  his  own  name,  and  scattered  through  the 
books  of  the  bank  you  will  again  meet  him  as  trustee  for  his  wife, 
trustee  for  each  of  his  children,  trustee  for  his  son-in-law,  etc. 
Accounts  may  be  opened  in  two  names  jointly,  as  John  Smith  or 
Mary  Smith.  Sometimes  John  Smith  and  Mary  Smith.  In  the  for- 
mer case  the  book  is  marked  "To  be  drawn  by  either  signature." 
In  the  latter  case,  "To  be  drawn  by  both  signatures  only."  The 
money  of  benevolent  and  other  associations  is  frequently  accepted 
by  the  Savings  banks  on  deposit,  generally  with  special  regulations 
as  to  the  officials  who  shall  have  control  of  the  funds.  A  special 
signature  book  is  provided  for  societies,  in  which  is  allowed,  not  a 
single  line,  but  an  entire  page,  so  as  to  provide  for  changes  in 
officers. 

Smith  occasionally  loses  his  book,  and  it  is  then  his  duty  to  re- 
port it  to  a  clerk  in  charge  of  that  department.  It  is  usually  re- 
quired that  he  advertise  its  loss  for  a  certain  number  of  times  in 
one  of  the  daily  papers.  The  reason  of  this  precaution  is  that  he 
may  have  assigned  his  claim  to  the  moneys  in  the  book  to  an  in- 
nocent holder,  and  be  thus  endeavoring  to  obtain  payment  twice. 
If  the  book  is  not  then  returned  he  is  required  to  execute  a  bond 
of  indemnity,  with  a  surety,  making  the  bank  good  against  any 
loss  from  adverse  claims,  and  to  make  an  affidavit  as  to  the  cir- 
cumstances of  the  loss. 

When  Smith  has  gone  over  to  the  great  majority  of  Smiths  his 
legal  representatives  will  ultimately  appear  at  the  bank,  presenting 
letters  testamentary,  or  letters  of  administration  from  the  Surrogate 
of  the  County.  Generally,  upon  these  being  admitted  as  correct, 
the  money  is  transferred,  without  loss  of  interest,  to  a  new  book 
in  the  name  of  the  executors  or  administrators,  or  paid  to  them 
in  cash.  Sometimes  their  names  are  simply  added  at  the  head  of 


64 


PRACTICAL    BANKING. 


the  original  pass  book,  but  in  the  bank  which  we  are  describing, 
it  is  a  rule  that  no  change  in  the  heading  of  an  account  shall  be 
made,  except  by  transfer  to  a  new  book,  lest  unauthorized  changes 
should  be  made,  or  alleged  to  have  been  made,  by  the  employees. 
Such  changes  are  sometimes  desirable,  for  example,  in  case  of  a 
woman  who  has  changed  her  name  by  marriage,  but  in  this  case 
she  may  continue  to  be  recognized  as  a  depositor  by  her  former 
name. 

The  depositors  of  our  bank  are  of  all  ages,  occupations,  re- 
ligions, nationalities,  colors  and  social  grades,  the  children,  from  ten 
years  upwards,  are  quite  as  exact  and  business-like  in  their  transac- 
tions as  their  seniors,  and  the  habit  of  carrying  on  a  Savings  bank 
account  is  quite  prevalent  among  the  children  of  all  classes. 

'As  the  official  with  whom  the  depositor  comes  first  and  chiefly 
in  contact,  we  will  describe  the  duties  of  the  receiving  teller. 

FORM  OF  DEPOSIT  TICKET,  PAGE  159. 


Write  the  amount  very  plainly ;  dollars  above  the  word 
"Dollars,"  cents  above  the  word  "Cents." 


CENTS. 


Deposited  in  the 

Union  Savings  Bank,  on  Book  No 

Name  of  Depositor 

Date Address 

=       Entered  by . 

Lay  bills  straight  in  the  book,  facing  one  way. 

If  you  deposit  checks  or  anything  besides  money,  please  give        Received  by 
particulars  on  the  back  of  ticket. 

See  if  the  entry  is  correct  in  the  book.  Posted 

FORM  OF  DRAFT  TICKET,  PAGE  161. 

Write  in  this  corner  the  amount  you  wish  to  draw, 

We  cannot  pay  very  P^inly,  in  figures  ;  dollars  above  the  word 

without  the  "  Dollars,"  cents  above  the  word  "  Cents." 

Book. 

DOLLARS.     CENTS 

The  Number  is 

on  the  Cover  of  NEW  YORK...  !88 

the  Book. 

Union  Savings  Bank.  Pay  on  Book  No 

Write  the 

Amount  very  to  myself  or  bearer Dollars. 

plainly  in  words. 

Signature 

Always  sign  as 

you  did  at  first.  Present  Address 

Previous  balance,  Paid  by  Entered  by  Sig.  exd.  by  Posted 


FORM  OF  SAVINGS  BANK  LEDGER  ACCOUNT. 

163,454.      John  Smith. 


January 
February 
April  ' 
May 


Drafts. 


Deposits  and  Interest 


20 
15  62 


Balance. 


25 
4062 


RECEIVING    TELLER.  165 


CHAPTER  IV. 
RECEIVING  TELLER. 


After  the  doors  of  the  vault  have  been  opened  in  the  morning 
he  takes  out  the  large  tin  box  containing  his  cash,  and  closed  by 
his  own  combination  lock.  Placing  the  bills  in  the  compartments 
of  his  drawer  according  to  denominations,  so  as  to  be  able  to  give 
change,  if  necessary,  and  arranging  his  tray  of  silver  conveniently, 
he  is  ready  for  operation.  As  has  already  been  said,  the  depositor 
hands  in  his  pass  book,  between  the  leaves  of  which  is  the  money, 
accompanied  by  a  deposit  ticket.  The  first  duty  of  the  teller  is  to 
count  the  money.  To  facilitate  this,  depositors  are  requested  to 
have  their  bills  neatly  laid  out  facing  in  one  direction,  and  the 
same  denominations  together.  The  teller  usually  counts  the  amount 
twice.  He  then  sees  that  the  amount  as  stated  on  the  ticket  is 
correct.  He  next  sees  that  the  depositor  has  correctly  stated  the 
number  of  the  account;  then  he  proceeds  to  make  the  entry  in 
the  pass  book  on  the  next  vacant  line,  writing  the  date,  the  amount 
in  words,  and  extending  the  amount  in  figures  into  the  column 
headed  "  deposit."  Then,  with  another  glance  at  the  ticket,  he 
sticks  the  latter  on  a  spindle,  and  hands  the  book  to  the  de- 
positor, again  repeating  the  amount. 

This  process  is  very  brief,  and  detains  the  depositor  less 
than  any  other,  but  in  many  banks  it  is  thought  that  further  en- 
tries should  be  made  before  the  depositor  leaves  the  bank.  In 
many,  a  different  clerk  enters  the  amounts  from  the  pass  book 
into  the  deposit  book,  which  will  soon  be  described,  and  then 
hands  out  the  book.  In  others,  the  pass  book  is  taken  direct  to 
the  ledger,  and  the  amount  posted  there  directly  from  it.  The  ob- 
ject of  these  precautions  is,  first,  to  insure  accuracy,  and,  'second, 
to  check  embezzlement  on  the  part  of  the  receiving  teller.  It  is 
always  more  difficult  to  prevent  embezzlement  on  the  part  of  a 
receiving  agent  than  of  a  disbursing  agent,  because  the  latter  is 
compelled  to  produce  vouchers  for  all  his  expenditures,  but  unless 
guarded  in  some  way  the  receiver  may  withhold  or  destroy  the 
evidence  of  his  having  received.  There  are  two  classes  of  methods 
employed  to  prevent  this  in  moneyed  institutions ;  one  is  that  which 


l66  PRACTICAL    BANKING. 

makes  another  employee  cognizant  of  his  doings ;  and  another,  that 
which  makes  that  known  to  the  public.  It  is  manifest  that  there 
is  no  absolute  security  in  the  former  method.  If  you  multiply  the 
number  of  hands  through  which  a  transaction  passes,  you  some- 
what diminish  the  probability  of  fraud,  but  there  is  always  the 
possibility  of  collusion;  but  collusion  with  the  chance  public,  whose 
interests  are  directly  opposite,  is  impossible.  Therefore,  the  writer 
considers  that  the  only  security  against  embezzlement  lies  in  making 
the  acts  of  a  receiving  agent  to  some  extent  public,  as  the  bell 
punch  does  on  the  horse-car  lines.  There  may  yet  be  invented  a 
method  by  which  the  teller  will,  by  pressing  certain  keys,  cause  the 
number  and  amount  to  be  legibly  written  in  a  book  which  shall  face 
directly  from  him  and  directly  towards  the  depositor,  who  will  be 
requested  by  a  sign  to  observe  whether  the  correct  amount  is  en- 
tered upon  it. 

Only  black  ink  is  used  or  kept  at  the  receiving  teller's  desk, 
The  reason  for  this  will  be  seen  when  speaking  of  the  paying  tel- 
ler. It  is  the  duty  of  the  receiving  teller  to  explain  the  regulations 
of  the  bank,  and  give  all  information  to  persons  inquiring  with  ref- 
erence to  opening  accounts;  to  explain  the  system  of  deposit  tick- 
ets to  those  who  are  not  acquainted  with  it,  and,  in  case  of  illiter- 
ate persons,  to  assist  them,  or  to  perform  it  for  them.  As  the  first 
impressions  of  depositors  will  be  formed  from  their  intercourse 
with  him,  it  is  essential  that  he  should  be  perfectly  courteous  and 
of  even  temper.  He  will  frequently  meet  with  depositors  who  will 
endeavor  to  defraud  him — who  will  pass  in  $99,  for  example,  and  a 
ticket  made  out  for  $  100,  and  when  told  of  the  error,  will  pull 
the  other  $  i  bill  out  of  their  pockets,  saying  very  innocently,  "  Is 
that  so?  I  must  have  counted  wrong,"  hoping  that  once  in  a 
thousand  times  the  teller  may  make  the  same  mistake. 

The  receiving  teller  should  be  an  excellent  judge  of  money,  an 
accomplishment  which  is  not  so  needful  for  the  paying  teller.  In 
fact,  although  in  business  banks  the  paying  teller  is  the  higher  of- 
ficer, it  would  seem  as  though,  in  the  Savings  bank,  the  receiving^ 
teller's  position  were  the  most  important.  During  the  day  the  re- 
ceiving teller  may  be  called  upon  to  supply  funds  to  other  depart- 
ments of  the  bank.  The  paying  teller  regularly  keeps  his  cash  filled 
from  that  of  the  receiving  teller.  He  draws  this  in  even  amounts, 
making  requisition  for  so  many  thousand  dollars  in  such  denomina- 
tions ;  therefore,  when  not  otherwise  occupied,  the  receiving  teller 
should  package  up  his  bills  with  paper  strips  properly  marked.  An 
excellent  rule  for  this  is  always  to  put  50  pieces  in  one  package, 
so  that  a  package  of  $2  bills  is  known  to  contain  $100,  and  a  pack- 
age of  $  5  bills  $250,  etc.  If  the  receipts  are  largely  exceeding  the 
expenditures,  or,  as  it  is  frequently  expressed,  "  the  bank  is  running^ 
ahead,"  the  Treasurer  may  make  requisition  in  a  similar  manner  for 


RECEIVING  TELLER.  167 

a  part  of  the  receiving  teller's  funds  to  deposit  in  bank.  Checks, 
drafts,  money  orders,  and  similar  documents  are  by  this  bank  freely 
taken  on  deposit  and  credited  as  cash,  but  with  a  particular  mark 
which  indicates  the  nature  of  the  funds,  and  nothing  is  ever  paid 
against  such  deposits  until  they  have  been  actually  collected. 
Some  of  the  more  conservative  banks,  probably  from  force  of  habit, 
rather  than  otherwise,  refuse  altogether  to  receive  checks  on  deposit, 
but  as  the  irresistible  tendency  of  the  age  is  to  make  all  payments 
of  any  moment  through  the  agency  of  banks,  the  rule  will  ulti- 
mately prevail  that  checks  are  prima  facie  cash.  Towards  the 
close  of  the  business  day,  or  whenever  he  has  leisure,  the  receiving 
teller  gets  ready  the  tickets  representing  the  transactions  of  the 
day,  in  order  to  have  them  written  up  in  his  book  called  the  "De- 
posit Book."  This  book  simply  contains  number  of  account  and 
amount  of  deposit.  (>ee  page  169.)  As  we  have  remarked,  it  may 
very  properly  be  written  up  from  the  pass  books  before  they  leave 
the  bank,  especially  if  the  business  is  sufficiently  voluminous  to 
give  the  receiving  teller  an  assistant  who  can  attend  to  this  and 
also  to  the  signature  book. 

For  convenience,  the  tickets  are  frequently  assorted,  proximately 
into  numerical  order,  before  writing  them  up.  The  only  advantage 
In  this  is  that  it  facilitates  searching  for  error,  if  any,  in  the  next 
day's  "  Bookkeeper's  proof."  There  are,  on  the  other  hand,  some 
advantages  in  entering  the  tickets  in  the  exact  order  in  which  they 
were  received,  because,  sometimes,  in  the  case  of  dispute,  this  enables 
us  to  find  the  names  of  the  depositors  who  were  standing  near  at  the 
time  the  questioned  deposit  was  made,  and  also  enables  us  to  ascertain, 
proximately,  the  hour  of  the  day  when  said  transaction  took  place. 
The  receiving  teller  is  required,  by  an  inflexible  rule,  to  turn  over 
to  the  Treasurer,  before  three  o'clock,  all  checks,  drafts,  or  other 
cash  items,  not  actually  money  or  currency,  so  that  the  cash  bal- 
ance carried  over  night  by  the  teller  is  bona  fide  cash,  and  available 
for  payments.  The  liberty  of  holding  checks  over  night,  or  memo- 
randa, in  place  of  cash,  may  very  easily  lead  to  a  fictitious  balance 
covering  a  real  shortage.  The  checks  received  are  entered  in  a 
special  book,  which  gives  the  name  of  the  bank,  the  name  of  the 
maker,  the  name  of  the  depositor  from  whom  received,  and  the 
amount.  Shortly  before  three  o'clock  the  janitor  goes  to  the  desks 
of  the  various  tellers,  and  asks  them  for  their  checks  and  check 
lists.  He  counts  the  items  received  from  each  one,  and  brings 
them,  with  their  contents,  to  the  Treasurer,  who  receipts  in  the 
margin  of  the  check-list  book.  Now  the  day's  work  is  over,  and  it 
is  the  teller's  duty  to  "balance  his  cash."  His  deposit  book  is  fully 
written  up  and  footed.  His  transactions  with  other  departments  of 
the  bank  have  been  noted  by  him  as  they  occurred,  and  are 
vouched  for  by  receipts  taken  and  given.  He  therefore  has  all  the 


l68  PRACTICAL    BANKING. 

elements  of  a  balance,  except  the  verification  of  the  amount  on 
hand.  He  counts,  first,  his  packages  of  bills,  assuming  the  contents 
of  the  packages  in  themselves  to  be  correct;  next  his  loose  bills, 
and  last  his  coin.  He  is  now  prepared  to  make  up  and  prove  his 
report  to  the  Secretary.  This  contains  three  columns — "debits," 
"credits,"  and  "cash  on  hand."  (See  form,  ^age  169.) 

In  the  debit  column  is  entered,  first,  the  amount  in  his  hands  at 
the  beginning  of  the  day;  second  the  amount  received  from  de- 
positors, being  the  total  of  the  deposit  book.  He  also  states,  as  a 
matter  of  statistics,  the  number  of  depositors,  and  also  the  number 
of  accounts  opened. 

Then  follow  receipts  from  other  sources,  either  from  the  treas- 
urer or  from  the  other  tellers,  but  this  is  exceptional,  for  the  re- 
ceiving teller,  as  such,  is  constantly  parting  with  his  money  inside 
of  the  bank,  and  has  no  occasion  to  receive  from  others.  It  might 
have  been  mentioned,  that  in  our  bank,  more  as  a  matter  of  con- 
venience than  otherwise,  expense  vouchers,  unless  paid  by  check, 
are  paid  by  the  receiving  teller  from  his  cash,  after  receiving  the 
approval  of  the  treasurer  or  secretary.  It  is  considered  that  there 
is  an  economy  of  labor  in  thus  relieving  the  receiving  teller  of 
part  of  his  money,  making  so  much  less  for  the  paying  teller  to 
recount. 

On  the  credit  side  of  the  teller's  report  is,  first,  "amounts  paid  to 
depositors,"  but  unless  he  has  acted  during  the  day  as  paying  teller, 
the  receiving  teller  will  have  nothing  to  record  here.  Next  come 
amounts  paid  to  the  treasurer.  This  will  embrace  the  checks  turned 
over  by  him,  the  currency  turned  over  to  be  deposited,  expense 
vouchers  paid  on  the  approval  of  the  treasurer  or  secretary.  In  the 
two  former  cases,  he  has  a  receipt  on  the  margin  of  his  check  list. 
In  the  latter  case,  he  holds  the  authorization  on  the  voucher.  Next 
come  payments  to  other  tellers.  This  is  normally,  of  course, 
to  the  paying  teller.  The  last  item  of  credit,  which  is  balance 
on  hand,  is  not  inserted  until  the  cash  has  been  counted.  The 
results  of  the  count  are  written  in  the  last  column  under  the 
heads  "Packaged  bills,"  "loose  bills,"  "coin."  Then  the  aggregate 
of  these  is  placed  opposite  the  words  "actual  cash  on  hand."  Now 
this  may  not  be  the  correct  amount  which  should  be  on  hand.  If 
in  excess,  the  cash  is  said  to  be  "over,"  if  deficient,  it  is  said  to 
be  "short." 

A  line  is  provided  for  each  of  these  contingencies,  and  if,  after 
thorough  search,  the  cash  is  "short,"  the  amount  of  deficiency  is 
entered  on  the  proper  line,  and  added  to  the  actual  cash  on  hand, 
the  result  being  carried  into  the  credit  column,  last  line.  If  the 
cash  be  "over,"  the  amount  of  excess  is  similarly  entered,  but  sub- 
tracted. The  amounts  of  the  debit  and  credit  columns  should  now 
be  equal.  This  report,  signed  by  the  teller, '  is  handed  to  the  sec- 


RECEIVING    TELLER. 


169 


retary,  who  extracts  from  it  the  information  necessary  for  his  books, 
which  he  will  hereafter  test,  and  marks  it  "  examined  and  entered, 

secretary,"  and   places  it  on  file.    The  teller  begins  his   report 

for  the  following  morning,  with  the  balance  on  hand,  as  corrected. 
During  the  following  day,  unless  he  succeeds  in  finding  the  error, 
he  is  required,  in  case  of  an  "over,"  to  charge  himself  by  ticket, 
approved  by  the  secretary,  with  the  amount,  placing  it  to  the  credit 
of  an  account  called  "excess  account,"  from  which  it  may  ulti- 
mately be  transferred  to  the  credit  of  the  rightful  owner  when 
ascertained.  In  case  of  a  "short,"  he  is  charged  in  an  account 
called  his  "deficiency  account,"  and  has  ultimately  to  refund  the 
amount  to  the  bank. 

Besides  the  daily  report  of  all  transactions,  the  teller  makes  a 
monthly  report  of  his  transactions  v/ith  depositors  alone,  for  more 
convenient  examination  by  the  auditing  committee. 

FORM  OF  TELLER'S  DAILY  REPORT. 

UNION  SAVINGS  BANK.— SECOND  TELLER'S  REPORT,  March  i,  1884. 
Dr.  Cr.  Statement  of  Cash. 


Balance  brought  forward 

Packaged  Bills  

10,500 

826  13 

Loose  Bills 

Coin             

269  72 

• 

100 

Treasurer.  

179  07 

Teller 

Actual  cash  on  hand.  .  . 

12,479  72 

Short  

Over 

i 

Balance  carried  forward.. 

12,478  72 

12,478  72 

18,483  92 

18,483  92 

I  hereby  certify  that  the  above 
report  is  true  and  complete. 


E.  D.  J, 


Teller. 


Examined  and 
entered. 


Sec. 


Cash  on  hand  examined  and  found  as  stated. 


Committee. 


I 

s 
o  % 

i  « 

ii 

*    ro 


1 70  PRACTICAL    BANKING. 


CHAPTER  V. 
THE  PAYING  TELLER. 

It  has  already  been  explained,  in  connection  with  the  receiving 
teller,  that  the  moneys  received  by  him  are  the  principal  sources  of 
supply  to  the  paying  teller,  but  if  the  payments  at  any  particular 
time  are  running  heavier  than  the  receipts,  recourse  must  be  had  to 
depository  banks  for  funds.  In  this  case  requisition  is  made  on  the 
treasurer,  who  draws  the  amount  from  the  nearest  bank,  and  takes 
the  paying  teller's  receipt  on  the  stub  of  the  check  book.  The 
bank  accounts  are  drawn  upon  for  payments  to  depositors,  also,  in 
another  way.  A  depositor  frequently  prefers  to  receive  his  payment 
in  a  check  on  some  commercial  bank,  rather  than  in  money,  thus 
lessening  the  risk  of  loss,  and  in  many  cases  creating  additional  evi- 
dence of  his  transaction.  In  this  case  the  paying  teller  sends  the 
depositor,  after  verifying  his  draft,  to  the  secretary's  window,  and 
himself  hands  the  draft  to  the  secretary,  who  gives  the  check  to 
the  depositor.  On  the  return  of  the  draft,  the  paying  teller  receipts, 
as  before,  in  the  margin  of  the  check  book.  Thus,  the  receipts  of 
the  paying  teller  are,  first,  from  the  receiving  teller;  second,  from 
the  treasurer  in  money  drawn  from  the  banks;  and,  thirdly,  in 
checks  which  are  immediately  issued.  His  payments  are  almost  ex- 
clusively to  depositors.  When,  as  has  already  been  said,  the  depos- 
itor presents  himself  at  his  window  with  a  request  for  a  certain 
sum  of  money,  the  paying  teller  has  to  make  the  following  inquiries : 

First. — Is  the  pass  book  presented? 

Second. — Is  there  sufficient  money  on  the  account  to  pay  the  draft  ? 
In  order  to  ascertain  this  he  requests  the  bookkeeper,  by  mention- 
ing the  number  of  the  account,  to  inform  him  of  the  present  bal- 
ance, or,  if  there  be  sufficient  time,  examines  it  himself. 

Third. — Is  there  a  properly  made  out  draft  for  the  amount?  If 
not,  the  teller  usually  makes  it  out  himself.  (See  form,  page  164.) 

Fourth. — Is  the  signature  genuine?  To  ascertain  this,  he  turns 
to  the  signature  book  ( the  entire  series  being  near  him ),  and,  find- 
ing the  number  of  the  account,  compares  the  signature  of  the 
draft  held  in  his  hand  with  that  originally  written  in  the  book.  It 
is  very  frequently  the  case  that  there  will  be  some  slight  disparity, 


THE  PAYING  TELLER.  17 1 

far  more  frequently  than  in  case  of  a  commercial  bank.  The  last 
withdrawal  was  perhaps  many  years  ago,  and  very  naturally  some 
change  may  have  taken  place  in  the  character  of  the  handwriting. 
Any  substantial  variation,  such  as  writing  initials  instead  of  full 
names,  or  abbreviations  instead  of  initials,  he  causes  to  be  corrected 
by  a  re-writing  of  the  name  on  the  back,  if  the  depositor  is  present 
in  person.  It  is  not  his  duty  to  refuse  payment  where  the  signa- 
ture is  not  absolutely  identical.  He  must,  using  the  best  of  his  judg- 
ment and  discretion,  form  his  opinion  as  to  whether  the  signature 
is  genuine.  A  by-law  of  the  bank,  which  has  been  sustained  as  rea- 
sonable by  the  courts  of  the  State,  declares  that  any  payment  made 
to  any  person  producing  the  genuine  pass  book  shall  be  considered 
valid,  and  shall  discharge  the  bank.  A  payment  without  the  pass 
book  is  very  exceptional,  and  is  never  made  without  the  approval 
of  one  of  the  officers  of  the  bank,  noted  on  the  draft  itself.  Id 
this  case,  of  course,  a  perfectly  incontestable  signature  must  be  pre- 
sented. In  the  case  of  persons  who  did  not  write,  but  made  a  mark 
on  the  opening  of  their  account,  the  mark  is  now  made  in  the  pres- 
ence of  the  teller,  and  the  person  is  asked  the  various  test  ques- 
tions which  were  asked  at  that  time.  If  answered  correctly,  and 
the  appearance  of  the  person  sufficiently  answers  the  description, 
this,  with  the  presentation  of  the  pass  book,  is  considered  sufficient 
evidence  to  pay  on. 

In  some  of  the  older  Savings  banks  the  signature  of  the  de- 
positor, when  coming  in  person  to  draw,  is  not  taken.  They  rely, 
not  on  comparison  of  signatures,  but  on  the  asking  of  the  so-called 
test  questions.  This  seems  to  us  a  very  improper  way  of  transact- 
ing business,  of  which  the  only  advantage  has  been,  in  past  years, 
the  saving  of  two  cents  for  an  internal  revenue  stamp,  now  abol- 
ished. The  bank  retains  no  voucher  for  the  payment.  It  is  perfectly 
easy,  especially  in  our  crowded  tenement  houses,  for  a  person  who 
has  abstracted  a  pass  book,  to  obtain  such  information  as  the  names 
of  parents,  etc.,  and  the  writer  has  no  doubt  that  many  cases  of 
fraud  have  occurred  in  this  way,  which  even  the  depositors  have 
not  been  aware  of.  The  identification  by  questions  should  only  be 
employed  as  a  last  resort,  where  comparison  of  signatures  cannot  be 
made. 

Fifth. — To  whom  is  the  amount  payable  ?  Instead  of  coming  in  per- 
son, the  depositor  frequently  gives  his  draft  to  another.  The  printed 
forms  given  by  the  bank  read  "  pay  to  myself,  or  bearer,"  and  in  the 
forms  given  in  the  pass  book,  the  word  "bearer,"  is  always  recommend- 
ed to  be  inserted.  Occasionally,  a  draft  is  presented,  payable  to  order, 
In  this  case,  of  course,  identification  is  necessary,  as  in  a  business 
bank.  The  bank  claims  the  right  to  decline  any  such  draft,  as  it 
is  no  part  of  its  business  to  verify  endorsements,  but  frequently 
the  difficulty  is  overcome  by  paying  in  check  to  the  order  of  the 


172 


PRACTICAL   BANKING. 


payee  named.  Some  drafts  are  presented  through  the  medium  of 
business  banks,  having  been  deposited  for  collection.  These  are 
also  usually  paid  by  check.  The  bank  has  the  right,  in  case  of  a 
financial  panic,  or  similar  emergency,  to  demand  sixty  days'  notice 
before  making  any  payments  whatever.  In  this  case,  it  is  the  duty 
of  the  paying  teller  to  accept  such  written  notices. 

The  paying  teller  keeps  a  draft  book,  precisely  corresponding  to  the 
deposit  book  already  described.  His  daily  report  is  precisely  similar  to 
that  of  the  receiving  teller,  the  footing  of  his  draft  book  being  entered 
as  a  credit,  and  the  statistics  of  the  number  of  drafts,  and  num- 
ber of  books  closed,  taking  the  place  of  number  of  deposits  and 
number  of  accounts  opened.  When  an  account  is  closed,  the  pass 
book  is  always  retained  by  the  bank;  therefore,  at  the  close  of  the 
day,  the  paying  teller  should  have  a  pass  book  for  each  account 
which  has  been  closed,  and  his  report  of  the  number  closed  is 
made  by  counting  these  pass  books.  The  following  morning  this 
account  is  verified  by  a  report  from  the  bookkeepers  of  the  num- 
ber of  accounts  actually  ruled  off  on  the  ledger.  In  case  of  a  lost 
book,  an  envelope,  of  the  size  of  the  pass  book,  and  marked  with 
the  number,  date,  &c.,  is  put  in  as  a  substitute  or  dummy.  It  is 
the  paying  teller's  business  to  keep  himself  supplied  with  funds,  and 
to  give  timely  notice  to  the  treasurer,  or  to  the  receiving  teller, 
that  they  may  have  money  ready  for  him  in  the  morning  hours 
when  he  has  leisure  to  count  it. 


FORM  OF  TRANSFER  TICKET. 


UNION  SAVINGS  BANK. 
TR/ 
from 

TRANSFER. 

....                                             to  the  cr< 
Account  No  

dit  of  Account  No  

NEW  YORK 

,8                                                   Date' 

Sign 
] 

Interest  from 

3resent  1 

Address...                                                  Jan' 

Entered,  Transfer  Book. 
Posted 

Apl. 

Sig.  ex 

'dby 

Approved  by           Posted            July 
as  Transfer.        Oct. 

THE  BOOKKEEPER.      •  17$ 


CHAPTER    VI. 
THE    BOOKKEEPEB. 

The  bookkeeping  department  of  the  Savings  bank  has  charge,  solely, 
of  the  accounts  with  depositors.  The  general  accounts  of  investments, 
income  and  expenditure,  are  a  separate  system  under  the  direct  charge 
of  the  secretary.  The  province  of  the  bookkeeping  department  is  to 
keep  a  classified  record  of  the  tellers'  transactions,  which  shall,  at  any 
moment,  indicate  the  standing  of  any  given  depositor  with  the  bank 
and  the  balance  to  his  credit,  at  the  same  time  corroborating  the 
accuracy  of  the  tellers'  figures.  The  transactions  with  the  depositor 
are :  first,  deposits ;  second,  interest ;  third,  drafts ;  fourth,  trans- 
fers. The  tickets  already  described  as  deposit  tickets  and  draft  tick- 
ets form  the  basis  of  all  the  bookkeeping  operations.  The  trans- 
fer, which  consists  in  withdrawing  from  one  account  and  crediting 
the  same  sum  to  another,  is  effected  by  a  double  ticket.  Half  of 
this  is  of  the  size  and  form  of  a  draft  ticket,  and  the  other  half 
of  that  of  a  deposit  ticket,  and  any  clerk  is  authorized  to  make  a 
transfer,  being  responsible  for  all  the  parts  of  it.  He  makes  the 
entry  in  both  pass  books,  writes  up  a  description  of  the  transac- 
tion in  a  third  book,  called  the  transfer  book,  giving  the  num- 
ber of  the  account  from  which,  the  number  of  the  account 
to  which  the  transfer  is  made,  and  its  amount,  and  also  the 
date  from  which  it  bears  interest.  The  double  ticket  is  placed 
upon  a  special  spindle  kept  near  the  transfer  book.  The  book- 
keeping work  of  one  day  is  always  done  on  the  following  day. 
The  result  of  the  day's  business  is  an  accumulation  of  tickets  of 
the  three  kinds,  as  already  described,  and  these  are  stamped  with 
the  official  date,  the  transfers  being  divided  into  their  component 
parts.  We  then  have  two  series,  one  of  debits  against  depositors, 
and  the  other  of  credits  in  their  favor.  The  first  duty  of  the  head 
bookkeeper  is  to  take  each  series  and  to  divide  it  according  to  the 
numbers  belonging  to  the  different  ledgers.  The  ledgers  of  the 
bank  contain  5,000  numbers  each,  in  consecutive  order,  but  when 
the  majority  of  the  accounts  have  been  closed,  several  of  these  are 
consolidated  and  kept  in  one  volume.  Each  bookkeeper  has  certain 
ledgers  assigned  to  him,  for  the  accuracy  of  which  he  is  responsible. 
One  bookkeeper,  whose  share  of  the  work  is  the  twenty-fifth  and 


174  PRACTICAL    BANKING. 

twenty- seventh  ledgers,  receives  the  tickets,  debit  and  credit,  belong- 
ing to  accounts  contained  within  those  limits.  He  next  makes  a 
further  arrangement,  so  as  to  bring  them  into  exact  numerical  order, 
which  greatly  facilitates  posting.*  It  may  be  briefly  described  as 
follows :  The  ledger  consists  of  three  columns  besides  the  date : 
debits,  credits  and  balance.  After  each  transaction,  and  in  the  same 
line  with  it  appears  the  resulting  balance  or  amount  to  the  credit 
of  the  depositor.  The  posting  is  done  entirely  from  the  tickets  in 
the  first  instance,  but  only  consists  in  rewriting  the  balance,  plus 
the  deposit,  or  minus  the  draft,  as  the  case  may  be.  Thus,  if  the 
bookkeeper  has  a  deposit  ticket  on  John  Smith's  account  for  $29.32, 
he  turns  to  the  proper  page  of  the  ledger,  as  indicated  by  the 
number  on  the  ticket,  and  there  he  finds  that  the  present  balance 

is $270  44 

Adding  mentally,  figure  by  figure,  he  writes  on  the  next  line  299  76 
which  is  the  new  balance  produced  by  the  transaction.  He  also 
writes  the  date,  but  does  not  make  any  entry  in  the  column  de- 
voted to  deposits.  Each  ledger  has  a  book  corresponding  to  it, 
called  the  "Journal,"  which  might  more  properly  be  termed  a 
"  Proof  Book  "  of  that  ledger.  It  is  a  transcript  of  all  the  postings 
each  day  to  accounts  in  that  ledger.  In  writing  up  the  tickets  in 
this  book,  which  is  done  as  soon  as  the  posting  is  finished,  the 
amounts  are  omitted,  only  numbers  and  names  being  copied.  Now 
comes  the  process  of  verification.  Turning  to  Mr.  Smith's  account, 
the  verifying  bookkeeper  (not  the  one  who  posted  it)  infers  from 
the  two  balances  that  the  transaction  must  have  been  a  deposit 
of  $29.32.  He  therefore  writes  that  amount  in  the  credit  column 
of  Smith's  account,  and  copies  the  same  into  the  credit  column  of 
the  Journal.  Now  it  is  evident  that  if  there  were  a  mistake  either 
in  the  amount  of  the  entry,  or  in  subtracting  instead  of  add- 
ing, or  in  computing  the  balance  as  changed,  the  aggregate  of 
the  entries  on  this  ledger,  and  the  aggregate  of  the  entries  of 
the  entire  day  will  be  incorrect.  This  aggregate  is  carried  to 
two  forms,  called  respectively,  the  "  Daily  Proof  of  Deposits,"  and 
the  "  Daily  Proof  of  Drafts."  Opposite  "  Ledger  twenty-five "  and 
"  Ledger  twenty-seven,"  the  bookkeeper  enters  the  amount  posted 
to  each  side,  as  shown  by  the  journal.  When  the  daily  proofs  have 
been  completed  by  filling  up  every  line,  their  total  is  compared  with 
the  total  aggregates  derived  from  the  teller's  reports,  and  if  there 
is  any  discrepancy,  it  indicates  some  error,  either  in  the  teller's 
accounts,  or  in  the  balancing  of  some  depositor's  account,  or  in  the 
transaction  on  some  depositor's  account,  or  in  addition.  It  is  the 
duty  of  the  clerk  who  last  made  an  error  which  threw  the  daily 
proof  out  of  balance  to  search  for  the  error  now  existing.  When 

*  The    process    employed    in    posting    is    fully    explained    in    an    article,  entitled    "  Balance 
Posting,"    in    The  Bookkeeper,  No    51. 


THE   BOOKKEEPER.  175 

he  has  found  the  present  error,  and  fixed  the  responsibility  for  it 
upon  one  of  his  colleagues,  the  latter  holds  the  unenviable  appoint- 
ment of  searcher,  until  he  again  relieves  himself  of  if  by  detecting 
some  other  offender. 

A  "  Monthly  Proof  "  is  also  made,  which  involves  the  total  trans- 
actions for  the  month,  and  the  aggregate  balance  of  each  ledger, 
being  a  summary  trial  balance ;  and  there  are  intermediate  "  Satur- 
day Proofs,"  which  are  not  obligatory,  but  made  by  the  bookkeepers 
for  their  own  convenience. 

We  have  described  one  of  the  most  advanced  methods  for  keeping 
accurate  accounts  with  depositors,  and  one  by  which  it  would  seem 
almost  impossible  that  any  error  should  escape  detection.  It  in- 
volves two  principles  which  seem  to  us  vital  in  insuring  accuracy. 
First,  that  where  there  is  a  great  volume  of  work  to  be  gone  over, 
it  should  be  cut  up  into  such  small  portions,  each  separately  proved, 
that  the  area  of  search  for  errors  is  narrowed.  Second,  that  the 
process  of  verification  should  be  totally  different  from  the  process 
verified.  A  familiar  illustration  of  the  latter  principle  is  'in  the 
process  of  addition,  where,  having  added  upwards,  we  then  add 
downwards,  lest  the  same  error  occur  in  the  same  combination  of 
figures.  We  will  now  describe  one  of  the  primitive  methods  which 
are  still  in  use  in  some  institutions  and  which  violate  these  prin- 
ciples. 

The  ledger  contains  columns  for  drafts  only  and  deposits,  none  for 
the  balance.  The  posting  is  done,  not  from  tickets  but  from  the 
tellers'  deposit  and  draft-books.  The  verification  is  merely  a  going 
over  the  items  in  the  same  order,  affixing  a  check-mark  if  the 
original  book  and  the  ledger  agree.  There  is  no  division  of  the 
transactions  and  balances  of  different  ledgers  or  sections.  The  only 
thorough  proof  is  in  the  semi-annual  trial-balance,  and  it  is  an  al- 
most hopeless  task  to  find  an  error  in  this,  if  there  is  a  discrep- 
ancy, as  usually  happens.  Experience  has  shown  that  this  method 
neither  prevents  nor  detects  with  certainty,  errors  in  posting. 

The  interest,  or  dividend,  is  computed  semi-annually,  and  its 
calculation  devolves  upon  the  bookkeepers,  each  for  his  own 
ledger.  The  calculations  are  gone  through  twice.  The  first 
operation  is  entered  in  a  book  called  "  Interest  and  Balance 

Book,  Ledger  ."  This  contains,  on  the  left  hand  side,  the 

numbers  of  all  the  open  accounts  in  succession,  followed  by  columns 
for  the  amount  of  interest  at  each  half-yearly  period,  separated  by 
other  columns  for  the  balance,  which  will  hereafter  be  explained. 
The  so-called  "  balance  column  "  of  the  deposit  ledgers,  greatly  fa- 
cilitates the  calculation  of  interest.  Making  the  calculation  men- 
tally, figures  are  put  down  in  the  "  Interest  and  Balance  Book,"  op- 
posite the  principal,  in  pencil.  When  the  ledger  has  been  finished 
in  this  way,  the  "  Interest  and  Balance  Book "  is  laid  aside  entirely 


1/6  PRACTICAL    BANKING. 

and  the  calculations  again  made,  the  result  being  noted  in  pencil 
on  the  margin  of  the  account.  Thus  there  are  two  independent 
calculations  of  dividend,  and  if,  upon  comparing  these  two,  they  are 
found  to  be  identical,  it  is  assumed  that  the  calculation  is  correct. 
As  this  work  is  commenced  before  the  end  of  the  interest  period, 
there  are  changes  during  its  progress,  caused  by  the  withdrawal  of 
money.  These  are  corrected  each  day.  After  the  first  of  January, 
or  of  July,  the  amounts  penciled  on  the  margin  are  written  with 
red  ink  in  the  body  of  the  account,  and  the  resulting  balance  car- 
ried out,  also  in  red.  The  "  Interest  and  Balance  Book "  is  added 
up  by  pages  and  aggregated  by  ledgers,  so  as  finally  to  show  the 
total  amount  of  the  dividend.  It  is  the  duty  of  the  bookkeeper  to 
enter  in  the  depositor's  pass  book,  whenever  required  by  him,  all 
dividends  standing  to  his  credit  up  to  date.  This  is  also  done  in 
red  ink,  and  it  is  the  invariable  rule  to  foot  up  and  balance  his 
pass  book  at  that  time,  compare  its  balance  with  that  shown  by  the 
ledger  account,  and  check  off  the  latter,  if  correct.  The  book  is 
also  similarly  balanced  whenever  the  page  is  full ;  thus  the  daily 
and  monthly  reports  of  the  bookkeepers  verify  and  control  the 
daily  and  monthly  reports  of  the  tellers,  the  cash  department  and 
the  accounting  department  each  reporting  to  the  secretary,  who  bal- 
ances one  against  the  other. 

In  connection  with  the  signature  book  the  index  cards  are 
described  and  exemplified.  These  are  kept  in  a  chest  of  drawers 
which  will  contain  about  10,000.  They  are  arranged  in  alpha- 
betical order,  the  index  cards  of  each  day  being  inserted  in  their 
appropriate  places,  and  the  cards  representing  closed  accounts  being 
each  day  extracted  and  filed  in  a  separate  series,  so  that  'the  reg- 
ular series  contains  only  the  open  current  accounts. 

Many  forms  of  index  books  have  been  and  are  used — simply 
alphabetical,  alphabetical  with  vowel  divisions,  and  alphabetized 
according  to  the  first  three  letters.  In  none  of  these  can  the  ar- 
rangement ever  remain  absolutely  alphabetical,  and  there  is  always 
a  considerable  space  to  be  gone  over  to  find  a  certain  name,  and  a 
great  chance  of  missing  it.  In  the  card  method  a  certain  name  can 
occupy  but  one  place,  as  in  a  directory,  and  the  dead  accounts  do 
not  have  to  be  gone  over  in  order  to  find  the  open  ones. 

Little  zinc  cards  indicate  the  divisions  between  letters,  and  be- 
tween combinations  of  letters,  so  as  to  facilitate  search. 

We  have  now  considered  the  principal  functions  of  all  the  clerks 
of  the  bank,  and  have  next  to  describe  the  duties  of  its  executive 
officers.  These  are,  in  the  bank  under  consideration,  the  president, 
treasurer  and  secretary.  The  treasurer  and  secretary  perform,  to  a 
certain  extent,  co-ordinate  duties.  That  is,  they  assist  each  other, 
and  relieve  each  other  when  absent.  We  will  describe  first  the 
duties  of 


THE  TREASURER.  177 


CHAPTER   VII. 
THE    TREASURER. 

This  officer  is  elected  by  the  board  of  trustees,  and  holds  office  at 
their  pleasure.  He  may  or  may  not  be  a  member  of  the  board,  but 
it  is  customary  that,  he  should  be.  His  department  is  the  custody 
and  management  of  the  investments  of  the  bank,  but,  as  the  senior 
officer  present,  he  exercises  a  general  direction  over  all  departments. 
The  cash  deposited  in  banks  is  principally  under  his  control.  He,  or 
the  secretary  acting  for  him,  directs  the  deposits  to  be  made  in  dif- 
ferent banks.  Checks  on  the  banks  are  signed  by  him  and  by  the 
secretary,  and  countersigned  by  the  president.  He  is  the  proper  of 
ficer  to  collect  interest  or  rent  due  the  institution,  to  receive  payment 
for  obligations  which  mature,  to  receive  applications  from  borrowers, 
and  to  lay  before  the  board  of  trustees  all  matters  pertaining  to 
investments  which  may  require  their  action.  The  principal  invest- 
ments of  the  bank,  as  permitted  by  law,  are — ist,  loans  on  pledge 
of  stocks;  2d,  stock  investments;  3d,  mortgage  loans. 

The  kinds  and  amount  of  these  various  classes  of  investments 
are  guarded  by  law,  which  differs  in  the  various  States.  In  the 
New  England  States  loans  may  be  made  upon  bills  receivable 
as  security,  which  is  not  the  case  in  this  State.  In  some  States 
loans  may  be  made  upon  bank  stocks  or  railroad  stocks. 

The  First  of  these  classes,  loans  on  pledge  of  stocks,  are  consid- 
ered as  a  temporary  investment.  The  loan  cannot  exceed  par,  and 
there  must  also  be  a  margin  of  ten  per  cent.  These  loans  are 
made  upon  the  sole  discretion  of  the  Treasurer,  as  it  would  be 
impracticable,  in  case  of  a  loan  from  day  to  day,  to  await  the  ac- 
tion of  the  board  at  its  monthly  meeting.  The  borrower  deposits 
the  securities,  the  treasurer  is  responsible  for  seeing  that  they  are 
genuine  and  that  they  are  sufficient,  and  for  their  custody.  He 
takes  from  the  borrower  a  voucher,  and  also  a  note,  which  are  at 
first  embodied  in  one  document,  afterwards  separated. 

The  raising  and  lowering  of  the  rate  on  such  loans  is  also  at  his. 
discretion,  and  if  the  loan  should  not  be  paid,  principal  or  interest,, 
when  due  and  demanded,  it  is  his  duty  to  sell  the  stocks  pledged 
as  collateral  security,  as  prescribed  in  the  note,  and  to  account 
properly  for  the  proceeds.  It  is  also  his  duty,  in  case  of  the  de— 


178  PRACTICAL    BANKING. 

preciation   of  the   security  below  the  legal    margin,   to    make  a  call 
for  a   sufficient  part  of  the  loan  to  bring  it  within   the  margin. 

Second. — Stock  investments.  These  are  usually  voted  by  the  board, 
but  the  practical  business  of  buying  and  selling  is  effected  by  the 
treasurer.  The  board  usually  authorizes  a  purchase  at  not  exceeding 
a  certain  price,  or  a  sale  at  not  below  a  certain  price,  and  it  is  the 
duty  of  the  treasurer,  of  course,  to  obtain  the  most  advantageous 
terms  possible  for  the  bank,  and  his  contract,  even  if  it  should  be 
contrary  to  the  vote  of  the  board,  would  bind  the  institution. 
These  securities  are  frequently  of  the  class  known  as  coupon  bonds, 
where  each  maturing  amount  of  interest  is  represented  by  a  small 
promissory  note  attached  to  the  margin  of  the  bond.  These  bonds 
and  their  coupons  being  payable  to  bearer,  there  is  greater  danger 
in  case  of  theft  than  from  registered  securities.  The  treasurer  is, 
therefore,  usually  instructed  to  convert  any  coupon  bonds,  which 
may  be  purchased,  into  registered.  As  an  expert  in  the  money  mar- 
ket, the  treasurer  is  expected  to  submit  to  the  board  at  its  meet- 
ings all  desired  information  as  to  what  appear  to  be  the  most  profit- 
able investments.  When  the  interest  on  the  stock  investment  ma- 
tures, the  treasurer  attends  to  its  collection  through  the  regular 
channels,  referring  to  the  register  of  interest  due,  kept  by  the  sec- 
retary. 

The  law  of  the  State  of  New  York  permits  Savings  banks  to  in- 
vest only  in  the  following  stocks  and  bonds:  i,  United  States 
bonds,  including  District  of  Columbia  3-65's;  2,  New  York  State 
bonds ;  3,  bonds  of  any  State  in  the  Union  which  has  not  during 
ten  previous  years  defaulted  on  principal  or  interest;  4,  bonds  (if 
issued  in  pursuance  of  a  State  law)  of  any  city,  county,  town  or 
village  in  the  State;  5,  any  interest-bearing  obligations  of  the  city 
or  county  in  which  the  bank  is  situated.  In  loaning  on  collateral 
security,  the  banks  are  restricted  to  the  same  classes  of  bonds. 

Third. — Mortgages.  A  person  desiring  to  borrow  from  the  bank 
upon  his  mortgage  on  real  estate,  fills  out  the  application,  which 
contains  spaces  for  a  full  description  of  the  property  and  other  in- 
formation concerning  the  proposed  loan.  This  is,  in  the  first  in- 
stance, investigated  by  the  treasurer,  and  in  a  great  many  cases  de- 
clined by  him  at  once.  He  is  understood,  by  custom,  to  have  a 
veto  upon  such  applications  as  seem  out  of  the  question.  If  the 
loan  appears  advantageous,  and  within  the  limits  prescribed  by  law, 
the  treasurer  submits  it,  with  others,  in  a  list  at  the  next  meeting 
of  the  board ;  a  printed  copy  of  the  list,  giving  a  brief  description 
of  the  security  in  each  case,  being  laid  before  each  member.  If 
the  loan  is  accepted,  and  the  application  forwarded  to  the  attorney 
to  whom  the  applicant  is  then  referred,  and  the  title  is,  by  the 
latter,  pronounced  good,  the  treasurer  draws  the  bank's  check  in 
iavor  of  the  attorney  for  the  amount  of  the  loan.  He  will  receive 


THE   TREASURER.  179 

from  the  attorney  the  application,  with  the  receipt  of  the  borrower 
endorsed  thereon.  Also  the  bond,  the  insurance  policy,  the  mort- 
gage, when  it  has  returned  from  the  office  of  public  record,  and  the 
abstract  of  title  when  it  has  been  copied.  It  is  his  duty  to  exam- 
ine each  of  these  documents,  to  see  that  the  correct  amount  has 
been  paid  upon  the  voucher,  to  see  that  the  bond  is  in  accordance 
with  the  vote  of  the  board,  that  the  insurance  policy  is  in  one  of 
the  companies  selected  by  the  bank,  and  made  payable  to  the  bank 
as  mortgagee,  that  the  mortgage  describes  the  property  correctly,  and 
that  the  abstract  is  properly  certified  to  by  the  attorney.  He  fur- 
thermore sees  that  the  documents  are  appropriately  filed  under  the 
serial  number  of  the  mortgage. 

All  the  documents,  except  the  application  and  abstract,  are  kept 
in  a  single  envelope,  headed  with  the  number  of  the  loan,  and  they 
retain  this  number  so  long  as  they  are  the  property  of  the  bank. 
The  application  is  filed  as  a  cash  voucher,  and  the  abstracts,  which 
are  somewhat  bulky,  are  kept  in  a  separate  series.  Semi-annually, 
on  the  first  days  of  May  and  November,  it  is  the  duty  of  the  treas- 
urer to  collect  from  the  mortgagors  the  interest  on  their  mortgages. 
He  sends  to  each  mortgagor,  about  twenty  days  previous  to  those  dates, 
a  statement  of  the  amount  of  interest  due,  the  computations  for 
which  are  made  and  verified  by  the  secretary.  This  statement  is 
so  arranged  as  to  constitute,  when  signed  and  returned  by  the  mort- 
gagor, a  letter  of  transmission  accompanying  the  payment  to  the 
treasurer.  These  statements  are  required  to  be  signed,  even  when 
the  party  pays  in  person,  as  evidence  of  the  correctness  of  the 
amount  paid.  In  return,  the  treasurer  gives  a  receipt.  In  the  ma- 
jority of  cases  the  payment  of  interest  on  mortgages  is  made  by 
check  on  some  bank  in  favor  of  the  institution.  If  it  is  made  in 
money,  a  statement  is  handed  with  the  money  to  one  of  the  tellers, 
who  receipts  therefor  by  writing  his  initials  after  the  words  "  Re- 
ceived by,"  and  returns  the  statement.  (See  form,  page  180.) 

The  secretary  debits  the  teller  and  credits  the  treasurer.  It  is  the 
theory  of  the  bank  that  every  document  representing  the  payment 
of  money  in  either  direction  should  be  doubly  signed,  by  the  party 
or  bank  official  giving,  and  also  by  the  one  receiving  it. 

Interest  on  loans,  it  might  have  been  stated,  is  collected  in  a 
precisely  similar  manner.  If  a  mortgage  becomes  in  default  of  inter- 
est or  principal,  it  is  the  duty  of  the  treasurer,  after  applying  all 
other  means,  to  place  the  mortgage  in  the  hands  of  the  attorney  for 
foreclosure,  and  upon  the  conclusion  of  the  action,  to  collect  and 
account  for  the  proceeds.  He  also  receives  money  in  partial  pay- 
ment of  mortgages,  usually  where  the  same  are  over-due,  and  running 
by  mutual  consent.  In  this  case,  he  requires  a  statement  of  the 
general  form,  and  gives  a  receipt. 

Besides    these    classes    of  regular    current    investments,   the   bank 


i8o 


PRACTICAL   BANKING. 


may,  in  certain  cases,  invest  in  real  estate.  These  cases  are  the 
following : 

1st.  A  building  for  its  own  use ;  but,  as  it  would  be  unprofitable  to 
confine  the  building  to  the  single  story  required  for  bank  use,  it  is 
allowed  to  add  portions  thereto  for  the  purpose  of  deriving  revenue 
from  renting.  2d.  Where  mortgages  are  foreclosed,  it  is  frequently 
necessary  for  the  bank  to  bid  at  the  sale  in  order  to  protect 
itself,  and  in  this  manner  it  may  become  the  buyer.  When  the 
fee  of  a  piece  of  real  estate  has  been  thus  acquired  by  the  institu- 
tion, it  then  becomes  the  duty  of  the  treasurer  to  act  as  the  bank's 
agent  in  managing  the  property,  to  sell  it  whenever  that  can  advan- 
tageously be  done,  and  to  derive  the  best  possible  revenue  from 
it,  so  long  as  it  is  held.  The  collection  of  rents,  both  from  the 
rented  portions  of  the  bank's  premises,  and  from  foreclosed  real 
estate,  is  effected  in  a  manner  analogous  to  the  collection  of 
interest.  A  statement  is  sent  out  as  a  notice,  returned  as  a 
voucher,  and  exchanged  for  a  receipt.  As  to  the  sale  of  real 
estate  held  by  the  bank,  the  board  usually  instructs  the  treasurer 
as  to  a  limit,  above  which  he  is  authorized  to  dispose  of  it.  When 
a  bargain  is  made,  he  and  the  purchaser  sign  in  duplicate  a  contract 
of  sale,  and  the  amount  paid  in  hand  at  the  signing  of  this 
contract  is  considered  as  a  liability,  and  credited  to  the  account 
"contracts  of  sale." 

The  expenditures  of  the  institution  are  under  the  supervision  of 
the  treasurer.  In  every  case,  whether  the  payment  be  as  an  invest- 
ment, or  as  the  expense  of  managing  any  of  its  departments,  he 
takes  from  the  payee  a  voucher,  and  if  the  actual  payment  is  made 
by  a  teller,  it  is  countersigned  by  the  latter.  (See  form  below.) 

FORM  OF  VOUCHER. 

Voucher  No 

For  Payment  by  the  UNION  SAVINGS  BANK,  OF  NEW  YORK,  TO 


188                                     Consideration.                          Amounts.                   Totals. 

I  CERTIFY  that  the  above  mentioned  .  .  . 

Approved  for  Payment, 

Paid  in  Money, 
...       .               Teller 

RECEIVED  ON,  188 

from    the    UNION    SAVINGS     BANK, 
Dollars, 

Check  No  

in  full  payment,  as  above  stated. 

Examined  by  Auditing  Comnv  ttee, 

THE  SECRETARY.  j8l 


CHAPTER   VIII. 
THE    SECBBTABY. 

The  secretary  is  supposed  to  be  the  accounting  officer  of  the 
bank.  It  is  his  duty  to  know,  from  its  books  and  records,  the 
state  of  the  institution  in  every  department,  at  any  time.  In  prac- 
tice, he  performs  a  large  share  of  the  duties  just  described  as  be- 
longing properly  to  the  treasurer,  he  being  constituted  by  the  by- 
laws, a  vice-treasurer;  but  his  duties  will  be  described  as  they  exist 
in  theory,  for  the  secretary  alone.  His  duties  may  be  divided  into 
three  branches :  as  correspondent  of  the  bank,  as  recorder  of  the 
board  of  trustees,  and  as  accountant  of  the  bank.  All  letters  should 
be  received  by  him,  and  answered  by  him,  either  immediately,  or 
upon  reference  to  the  appropriate  department.  It  is  the  rule  of  the 
bank  that  every  letter  received,  however  unimportant,  be  filed  in 
its  alphabetical  place,  and  that  every  letter  sent,  however  appar- 
ently unimportant,  be  copied  in  the  impression  book.  This  refers 
to  all  correspondence  not  of  a  personal  character,  or  all  which  is 
signed  officially.  There  can  be  no  such  thing  as  an  unimportant 
letter,  because  the  fact  of  every  letter  being  copied  enables  us  to 
say  positively,  "  I  did'nt  write  a  letter  to  so  and  so  on  such  a 
day,  because  if  I  had,  it  would  appear  in  the  copying  book."  This 
being  able  to  swear  to  a  negative,  which  can  only  be  done  by  the 
aid  of  a  rule  without  exceptions,  is,  of  itself,  worth  all  the  labor 
attending  the  copying  of  letters.  Official  letters  of  the  bank  are 
written  upon  its  letter  sheet,  the  heading  of  which,  printed  in 
copying  ink,  contains  the  clauses,  "  referring  to  your  letter  of 

,"  and  "  subject ,"  which  enables  a  correspondence  on  a 

given  subject  to  be  traced  through  the  letter  book.  Special  forms 
of  letters  often  required,  are  printed,  as  letter  of  transmission  to  at- 
torneys, with  check  for  the  mortgage ;  letter  to  depositor,  with  re- 
mittance on  his  account;  request  to  depositor  to  present  pass  book 
(for  the  tracing  of  errors,  &c. );  circular,  explaining  to  persons  at  a 
distance  how  to  deposit  without  coming  in  person,  called  the  "re- 
mittance circular."  Circular  with  rules  as  to  interest  on  mortgage, 
<£c.  This  is  used  to  "stir  up"  delinquents  by  under-scoring  the 
part  against  which  they  have  transgressed.  Notices  of  meeting  of 
board  of  trustees. 


182  PRACTICAL    BANKING. 

Second.— As  recording  officer  of  the  board  of  trustees,  the  secretary 
performs  the  ordinary  duties  of  keeping  the  journal  or  minutes, 
and  filing  and  preserving  documents.  He  submits  to  the  board  at 
each  meeting  a  report  which  is  confined  to  the  dealings  of  the  bank 
with  its  depositors,  giving  all  the  statistics  as  to  number  and  amount 
of  receipts  and  payments  and  averages. 

Third. — The  chief  duties  of  the  secretary,  or  those  which  occupy 
the  most  of  his  time,  are  those  which  he  performs  as  accountant  to 
the  bank.  Strictly,  he  has  no  custody  of  any  values  whatever, 
but  all  records  of  transfers  of  values  are  directly  or  indirectly  made 
by  him.  Thus,  he  is  an  auditor  of  every  department  of  the  bank, 
all  of  which  contribute  to  him  through  reports.  He  keeps  person-1 
ally,  or  through  assistance,  all  the  general  books  of  the  bank,  that 
is  to  say,  all  the  books  of  the  bank  except  those  containing  the  ac- 
counts with  depositors.  His  daily  cash  book  classifies  transactions 
in  two  ways:  ist,  as  they  affect  the  general  standing  of  the  bank  in 
its  relation  with  the  outside  world ;  and,  2d,  as  they  affect  merely 
the  increase  and  diminution  of  some  one  of  the  departments  of  its 
cash.  These  departments  are  : — 

i  st.  Money  in  the  hands  of  tellers. 

2d.  Funds  in  the  vault  in  the  direct  custody  of  the  treasurer. 

3d.  Deposits  in  banks  subject  to  check  signed  by  the  president, 
treasurer  and  secretary. 

These  together  constitute  the  total  cash  account,  and  the  possi- 
ble transactions  may  be  of  the  following  kinds : 

i  st.  Money  received  from  the  public  and  paid  to  one  of  these 
departments,  or,  in  other  words,  an  increase  of  the  total  cash  with 
an  increase  in  a  department. 

2d.  Money  paid  to  the  public,  and  drawn  for  that  purpose  from 
one  of  the  departments,  or,  in  other  words,  decrease  of  total  cashr 
and  decrease  of  department  cash. 

3d.  A  transfer  from  one  department  of  cash  to  another,  or  in- 
crease of  one  department  and  decrease  of  another. 

By  means  of  the  inner  columns  of  the  cash  book,  which  repre- 
sent transactions  with  the  public,  and  which,  alone,  find  their  way 
to  the  monthly  cash,  and  the  outer  columns,  which  represent  the 
various  departments  spoken  of,  all  the  records  for  a  single  day  are 
made  upon  a  single  page.  The  possible  transactions  of  a  single 
day  will  be  shown  by  an  example,  in  which  a  page  of  the  daily 
cash  book  will  be  shown,  referring  to  the  reports,  documents  and 
vouchers  which  form  its  basis.  It  will  be  seen  that  every  figure 
appearing  in  the  columns  of  the  daily  cash  has  its  counterpart  in 
two  different  documents  or  reports,  and  that  these  bear  upon  and 
corroborate  each  other.  The  only  exceptions  are  the  "vault"  and 
the.  "check  list,"  which  are  merely  suspended  transactions;  half-way 
houses  where  the  Treasurer  temporarily  detains  values. 


THE  SECRETARY.  l8: 

REFERENCES  AND  EXPLANATIONS  TO  DAILY  CASH  BOOK. 

Line    i    has    no    vouchers.       ib    relating  to  the  "Vault,"  cann< 
have  one,  as  it  merely  completes  an  operation  which,  like  1 5,  was  ii 
terrupted  by  the  arrival  of   the   hour  of   three,  when    it  became  ir 
possible    to    deposit   the     checks.       if  is    included    in   the    sum 
line  14,  for  which  the  Park  Bank  gives  its  voucher  in  the  pass  boo 

Line  2.    Collection   of  Interest,    d  is   supported   by  Statement  N 
784,  as  follows: 


NOTICE.  —  The    half   yearly  interest,  $1,500,  on    Mortgage   No.  443,  for  $5o,ot 
will  be  due  and   payable  on  the   first  of  May,   1886,  at   the   Union  Savings   Bar 
New  York.     Prompt  payment  is  expected.     Receipted  tax  bill  for   last  year  to 
exhibited  unless  already  done. 


s  Paper  is  to  be  SIGNED  and  returned  to  us  with  the  payment.  «J£| 


EXAMINED. 


NEW  YORK,  March  i,  1886. 
To  the  Treasurer  of  the  UNION  SAVINGS  BANK. 

SIR  :— Herewith  I  deliver  to  you,  in  payment 
above  Interest,  fifteen  hundred  Dollars.     Please  acknowledge  recei] 

JAMES  O.  SMITH, 
$1,500  Received  by  S.  Address,  115  Broad wj 


Line  3.  Payment  of  Expense,  a  is  included  in  the  amount  $i79-< 
Second  Teller's  Report,  see  page  169.  For  e  see  Form  on  pa 
1 80.  Voucher  signed  by  teller. 

Line  4.  d  is  supported  by  Statement  No  785,  as  follows :  It 
signed  by  the  tenant  and  countersigned  by  the  teller  who  receiv 
the  money. 


PLEASE  SIG 

f  AND   RETURN  WITH  THE   RENT. 

UNION  SAVINGS  BANK. 

NEW  YORK,  March  i,  1886. 
To  the  Treasurer  of  the  UNION  SAVINGS  BANK. 

Rent  will  be  due  Mar.  i,  1886, 
for  No.  335  East  46th  Street, 
from    March   i    to   April    i, 
i  Month,  at  $t,  200  per  year. 
$100.                       E.  D.  J. 

SIR: 
Herewith  I  deliver  to  yo 

One    hundred  Dollars,   in    payment    of    Rent,  i 
stated  in  the  margin. 
GEO.  P.  TRUMBULL, 

Lines  5  and  6  refer  to  a  single  transaction.  As  two  accounts 
"  Mortgages  "  and  "  Interest" — are  affected  by  it,  it  requires  two  lin 
Statement  786  is  as  follows : 


DATE,  MARCH  i,  1886. 


UNION  SAVINGS  BANK. 


by  Tellers^ 

b)  Drawn 
front 
Vault. 

(e)  Checked 
front  Banks. 

d)  Received 
front  the 
Public. 

1! 

Account. 

R 

(e)  Paid  to 
the  Public. 

4* 

215  37 

TVb. 
784 

Interest, 

i.  From  vaj,( 
2.  6  mo.  6  ;•( 

J 

5289 

100 
10,000 

116  67 

9 

Expense, 
Rent, 
Mort.  357. 
Interest, 

365 

52  89 

3.  Consol.  m 
4.  Turnbulljat 
5.  »  Satisfied* 
6.  j         Chtiic 

P 

112,500 
36,500 

U.  S.  4M  %, 

2344 

112,500 

7.  Bo't  of  >J$B 
8.  Transfer! 

500 

787 

Rent, 

9.  Smith,  <jm 

P 

375 

Expense, 
Real  estate,  15 

366 

2345 

75 
300 

10.  Banking  ofc 
n.    716  MadE 

A 

7 

s$ 

12.  Checks  f  n 
13-        » 

A 

56   12 

14.  Deposit.-,.! 

15.  Checks  f:al 

16. 

18*. 

* 

1 

P 

1,200 

28.  Checks  i.  ie 

•C 

29. 

120 

IO 

A 

6,718  19 

30. 

17 

q 

J%   826   11 

3^« 

«o 

1 

1 

Q 

10,140  40 

W 

Depositors, 
do. 

w 

7,544  32 

32.  Deposits  tn 
33.  Drafts     1 

a 

"8 

547,472  78 

34.  Balances.in 

0 

c 

31,335  15 

40,056   12 

377,966  37 

449,357  64 

35.  Balances  it< 

Sin 

39,434  3i 

40,271  49 

528,541  37 

569,829  85 

569,829  85  36. 

116  67 


This  Form  is  to  be  Returned 
to  us  with  Signature. 

UNION  SA  VINGS  BANK. 

NEW  YORK,  March  i,  1886. 
Statement  for  Payment  of  Mortgage  No.  357,  on 

Property,  292  East  32d  Street.     Principal,        ...         -        $10,000 
Interest  at  5  per  cent,  from  January   7  to  March  i,  1886,  ") 
2  months    24  days.  j 

10,116  67 
To  the  Treasurer  of  the  UNION  SAVINGS  BANK. 

SIR  : — We  deliver  to  you  herewith  Certified  Check  for 
Ten  thousand,  one  hundred,  sixteen  $fc  Dollars,  in  payment  of  the 
above  mortgage,  and  acknowledge  receipt  of  the  following  papers : 
Bond,  Mortgage,  Satisfaction  Piece,  Abstract,  Insurance  Policy. 

ALEXANDER  AND  GREEN,  Attorneys, 

per  James  Blacstone,  Jr. 

Line  7.  Purchase  of  Bonds,  c  will  be  accounted  for  in  the  pass 
book  of  the  Park  bank,  which  will  claim  credit  for  this  and  other 
amounts,  e  is  supported  by  voucher  No.  2344,  in  form  similar  to 
that  already  given. 

Line  8.  Transfer  Between  Banks,  Having  drawn  a  large  check  on 
the  Park,  a  transfer  is  made  from  the  Chemical,  so  as  to  equalize. 
The  current  checks  are  drawn  upon  the  Park,  and  the  balance  in 
the  Chemical  is  kept  at  some  multiple  of  365,  to  facilitate  the 
computation  of  daily  interest. 

Line  9.  Collection  of  Rent.  Similar  to  4,  except  that  payment  is 
received  in  check. 

Line  10,  n.  Payment  of  Expense.  Two  vouchers  are  taken  for 
this  according  to  the  distinction  explained  on  page  183. 


DAILY  CASH  BOOK. 


L. 

(/!««* 

(g)Depostted 
in  Banks. 

(A)  Placed 
in  vault. 

(**)  Received  by 
Tellers. 

(/)    Cash  on  Hand  at  Close. 

J:ks  brought  over..  . 
1  433,  Smith  ;  Chem. 
1  to  Feb.  26  

215  37 
1,500 

10,116  67 

36,500 
5oo 

ss 

P 

49,277  87 

56  12 

3 

A 

A 
J 

100 

1,200 

1     37623 
o  9,764  17 

1 

ISt 

2d 

Ov< 
Vat 
Bat 
Par 

Ch( 

Tot 

16 
i34 

1 

o 

8 

Teller,  18,856  43 
Teller,  12,479  72 

3i,336  15 
-r>                  *        3T,335  15 

lit,                                     40,056   12 

iks, 
k,         195,466  37 
jmical,  182,500  oo 
377,966  37 
^»                         449,357  64 

00 

16 
0 

46,  i  mo.,  Ccy.... 
under  &  Green, 
j»mo.,  24  d.,  5%-.. 
tf:&Co.  at  112^  ... 

lion  Ave.,  5th  Nat.. 
t  Daubwell  for 
painting.. 
Her      

$2,596  08 

Her  after  i.  .  , 

day  Increase, 
Decrease, 

1  1  forward  .  . 

479,263  50 

40,215  37 

27,993  91 

528,541  37 

40,271  49 

39i434  3i 

Line  12,  13.  These  are  totals  of  the  checks  taken  on  deposit  by 
each  teller  during  the  day.  They  are  included  in  the  amounts  $375.- 
77  and  $179.07,  for  which  the  tellers  respectively  claim  credit  in  their 
reports.  (The  report  of  the  first  teller  is  given  below,  line  30.)  Each 
teller  keeps  a  book  in  which  he  records  the  particulars  of  each  check, 
viz.,  the  bank  on  which  it  is  drawn,  name  of  the  maker,  number  of 
account  on  which  it  is  deposited,  name  of  last  indorser  from  whom 
it  was  received,  and  amount.  The  book  is  handed  in  to  the  treasurer 
with  the  checks  between  its  leaves  ;  they  are  compared  with  the  list 
and  the  total  initialed  by  him. 

Line  14.  At  the  time  for  making  the  deposit,  the  "check  list" 
column  is  added  up.  At  the  same  time  a  deposit  slip  is  made  up 
from  the  checks  themselves  and  its  total  compared  with  i^g.  If  cor- 
rect, a  press  copy  is  taken  of  the  slip.  The  teller  of  the  Park  bank 
receipts  by  entering  the  amount  in  the  pass  book  with  his  initial. 

Line  15.  One  of  the  tellers  has  received  some  checks  too  late  in 
the  day  to  be  included  in  the  deposit  just  mentioned.  As  it  is  a 
positive  rule  that  the  tellers'  final  balances  must  be  in  actual  money 
these  checks  are  handed  in  to  the  treasurer,  who  enters  them  in  the 
"vault"  column,  whence  their  amount  will  be  taken  next  morning 
to  form  the  first  item  in  the  check  list. 

The  above  entries  are  made  during  the  day  from  time  to  time. 
The  remaining  entries  are  made  at  the  close  of  business  for  the  day 
when  the  tellers  have  made  their  reports.  The  teller's  report  shown 

on  page  169  is   that  of   the   second   teller,  J ,  for   the   day  under 

consideration.  The  report  of  the  first  teller,  A ,  contains  the  fol- 
lowing entries,  the  signatures  and  "  statement  of  cash "  being 
omitted  : 


PRACTICAL  BANKING. 


FIRST  TELLER'S  REPORT. 


Dr. 


Cr. 


19,374  16 
376  23 

1,200 
5,000 


25,950  39 


Balance  brought  forward, 
16  Depositors,  120-10 

319  65 
Treasurer,  56  12 

ad  Teller, 
Balance  carried  forward, 


6,718  19 


375  77 


18,856  43 


25,950  39 


The  entries  from  the  report  are  made  as  follows :  "  Balance 
brought  forward "  is  compared  with  the  previous  page,  under  the 
head  of  "  cash  balance  at  close."  The  amounts  opposite  "  depositors  " 
are  entered  on  line  30,  a  and  /.  The  $1,200  which  is  composed  of 
checks  drawn  for  payment  to  depositors  who  prefer  to  receive  it  in 
that  form,  is  compared  with  the  stub  of  the  check  book  and  entered 
at  28,  under  c  and  /.  The  $375.77  has  already  been  entered  in 
column  a,  and  is  composed  of  $319.65  and  $56.12.  The  $5,000  is 
found  to  be  the  exact  converse  of  an  entry  in  the  second  teller's  re- 
port and  the  two  are  checked  off  against  each  other.  Finally,  the 
additions  having  been  proved  and  the  two  sides  found  to  agree,  the 
balance,  $18,856.43  is  entered  in  the  statement  of  "cash  on  hand  at 
close."  The  second  teller's  report  is  then  taken  up,  examined  and 
entered  in  the  same  way,  not  omitting  to  note  an  "over"  of  $i. 
The  total  amount  for  which  the  tellers  are  accountable  is  $31,335.15, 
which  is  entered  at  35  a.  Then  the  columns  a  and  j  are  added  up, 
showing  an  equality,  which  proves  the  correctness  of  the  figures  as 
far  as  they  relate  to  the  teller's  funds.  Next  the  entries  32^  and  33,? 
are  made  up  by  adding  together,  for  the  former  30  and  31  /,  and  for 
the  latter  30  and  31  a. 

It  now  remains  only  to  prove  the  remaining  departments  of  cash, 
and  the  aggregate.  The  amounts  in  line  34  were  brought  forward  at 
the  beginning  of  the  day  from  the  previous  page.  The  amount  in 
vault  is  ascertained,  entered  at  6j  and  also  at  35^.  Columns  b  and  j 
then  become  equal.  The  amount  in  each  bank  is  obtained,  aggre- 
gated at  8,  9,  107,  and  entered  at  35^,  where  it  balances  the  account 
of  the  banks.  The  total  cash  is  now  ascertained  (i  i/)  and  entered  at 
35<?,  which  gives  the  equal  footing  $569,829.85,  and  proves  the  cash  in 
bulk  as  well  as  by  departments. 


THE   SECRETARY.  183 

The  voucher  or  document  given  by  the  banks  where  we  deposit 
is  in  the  pass-book  entries;  it  is  made  immediately  in  the  case  of 
deposits,  but  in  checks  not  till  the  end  of  the  month,  when  the 
pass-book  is  balanced.  The  lines  of  our  specimen  page  of  the  daily 
cash  book  will  be  numbered,  and  each  column  forming  it  will  be 
lettered,  and  in  our  explanation  the  two  supporting  vouchers  of 
each  line  will  be  given  in  succession. 

The  intermediate  transfers  or  interchanges  between  departments 
of  the  bank,  which  occupy  so  large  an  amount  of  the  soace  of 
the  daily  cash  book,  do  not,  as  a  rule,  go  beyond  its  pages.  The 
inner  columns  which  we  have  spoken  of  as  representing  the  rela- 
tions of  the  institution  to  the  public,  contain  all  that  enters  into 
the  general  books  of  the  bank,  and,  with  the  exception  of  the  en- 
tries "  deposits  received,"  and  "  drafts  paid,"  every  item  in  these 
inner  columns  is  supported  by  a  voucher.  These  form  two  series, 
called  the  "  general  vouchers  for  receipts "  and  the  "  general  vouch- 
ers for  payments."  Each  series  is  numbered  consecutively,  but  the 
vouchers  for  payments  form  two  series.  For  the  sake  of  conveni- 
ence, vouchers  relating  to  expense,  either  of  management  or  of 
the  banking  premises,  are  numbered  from  i  to  1,000,  repeating 
these  numbers  when  the  thousand  has  been  reached.  The  re- 
maining vouchers  for  payment  are  numbered  from  1,000  upward. 
Upon  reaching  No.  2,000,  the  numbers  re-commence  at  i.oou 
The  reason  for  this  is  that  the  series  with  smaller  numbers  or  ex- 
pense vouchers  are  subjected  to  a  special  analysis  in  a  book  called 
the  "  Expense  Book,"  and  it  is  therefore  preferable  to  keep  them 
together.  These  two  series  of  general  vouchers  for  receipts  and 
payments  are  the  basis  of  all  further  records.  No  entries  are  made 
from  book  to  book,  but  always  from  the  voucher  to  the  book,  the 
fact  of  such  record  taking  place  being  noted  on  the  back  of  the 
voucher.  Thus,  a  voucher  for  expenditures  on  real  estate  other 
than  the  banking  house  is  recorded  in  the  daily  cash  book,  in  the 
monthly  cash  book,  under  the  heading  "  real  estate,"  in  the  real 
estate  ledger,  under  the  head  of  the  particular  property,  and  in  the 
general  ledger,  under  the  account  of  "  real  estate."  These  four  en- 
tries are  made  each  direct  from  the  voucher.  The  letter  "  D "  on 
the  back  of  the  voucher  indicates  that  it  has  been  transcribed  in 
the  daily  cash  book ;  the  letter  "  M  "  that  it  has  been  entered  in 
the  monthly  cash  book ;  and  the  folio  of  the  real  estate  ledger 
and  of  the  general  ledger  are  also  noted  on  the  back.  These  four 
entries  must  correspond,  and  any  discrepancy  between  them  will  be 
detected  by  the  operation  of  the  trial  balance. 

The  practice  of  requiring  signed  vouchers  for  payments  of  money 
has  long  been  an  established  rule  of  mercantile  practice,  but. 


184  PRACTICAL    BANKING. 

strange  to  say,  where  value  of  some  other  kind  is  paid  or  given, 
and  money  received,  it  has  not  usually  been  customary  to  insist 
upon  a  voucher.  In  this  bank  the  principle  is  rigorously  carried 
out  that  in  every  transaction  involving  an  interchange  of  values, 
there  shall  be  a  corresponding  interchange  of  documentary  evidence 
between  the  parties.* 

As  the  entire  accountability  of  the  bank  rests  upon  these  docu- 
ments, so  their  arrangement  in  convenient  form  for  examination 
and  reference  is  of  importance.  The  vouchers  for  each  month  are 
arranged  in  two  series — the  receipts  and  the  payments,  and  each  of 
these  has  a  list,  the  form  of  which  is  printed  on  strong  manilla 
paper.  The  inside  of  the  list  of  vouchers  for  cash  payments  con- 
tains, first,  a  certificate  from  the  auditing  committee  that  they  have 
examined  all  the  vouchers  mentioned  in  the  list  below,  amounting 
to  $  ,  and  have  passed  the  same  as  correct.  The  committee 

not  only  signs  this,  but  one  of  its  members  marks,  with  his  initial 
or  otherwise,  each  particular  voucher,  in  order  to  prevent  its  being 
again  presented.  When  the  examination  is  completed,  this  list 
serves  as  a  wrapper  or  jacket,  within  which  the  vouchers  them- 
selves are  tied  up.  On  the  outside  of  the  wrapper  is  a  printed 
form,  giving  the  amount  as  classified  for  posting  aggregates  to  the 
general  ledger.  The  total  of  this  outside  list  will  be  the  same 
figures  as  the  total  of  the  numerical  list  verified  by  the  commit- 
tee, but  it  gives  simply  the  aggregate  to  be  charged  to  each  ledger 
account.  For  example,  the  list  inside  may  contain  a  number  of 
vouchers  for  money  loaned  on  mortgage.  The  classified  list  will 
simply  state — "  Mortgages,  $  ."  These  lists,  on  the  outside  of 

the  bundles  of  vouchers  constitute  what  might  be  called  a  grand 
voucher,  which  authorizes  the  secretary  to  record  the  transactions 
in  bulk. 

An  examiner  would  not,  for  the  great  mass  of  transactions,  re- 
quire any  books  in  order  to  ascertain  the  past  history  of  the  insti- 
tution since  this  method  has  been  in  practice.  He  would  simply  be 
handed  a  number  of  bundles  of  vouchers — two  for  each  month — 
with  the  authenticated  list  on  the  inside  of  the  wrapper  and  the 
classified  list  on  the  outside,  and  from  these  he  could  himself  make 
up  an  authenticated  history  of  all  the  substantial  transactions  of  the 
bank  during  the  period  covered.  These  are  the  real  records  of  the 
bank.  All  the  books  are  simply  transcripts  in  various  convenient 
and  ingenious  forms,  in  which  the  order  of  the  vouchers  is  changed 
for  obtaining  special  results.  The  vouchers  are  the  history — the 
books  are  philosophical  combinations  of,  and  deductions  from,  the 
facts. 

The  primary  vouchers  of  the  deposit  department,  as  already  men- 
tioned, are  the  deposit  tickets  and  draft  tickets,  but  it  would  be  in- 

*  See  Lecture  on  Documents  as  Related  to  Accounts,  published  in    The  Bookkeeper,  No.  58. 


THE  SECRETARY.  l8$ 

convenient,  from  the  number  of  these,  to  file  them  with  the  general 
vouchers.  Each  teller's  daily  report  is  a  substitute  or  grand  voucher 
for  those  of  the  day  in  his  department,  and  these  might  be  filed  in 
that  relation;  but  as  they  are  stated  in  the  form  of  an  account, 
they  would  have  to  be  made  in  duplicate,  and  therefore,  for  conve- 
nience, the  monthly  return  is  required  from  each  teller  as  to  his  de- 
posits and  as  to  his  drafts. 

The  secretary  makes  up  at  the  end  of  the  month  two  combined 
vouchers  from  these  monthly  returns.  He  brings  together  the  total 
amount,  and  he  certifies  to  its  agreement  with  the  aggregate  reports 
given  independently  from  the  bookkeeper's  department,  so  that  these 
two  vouchers  contain  the  ultimate  condensation  of  the  thousands  of 
drafts  and  deposits  which  accrue  each  month.  This  might  be  called 
a  cumulative  voucher  of  the  fourth  degree.  The  primary  voucher 
being  that  signed  by  the  depositor,  the  secondary  voucher  being  the 
teller's  daily  report,  and  the  tertiary  being  the  teller's  monthly  re- 
port. As  corroborated  by  the  accounting  branch  of  the  deposit  de- 
partment, it  consists  of  even  more  steps. 

The  business  of  the  bank  has  three  different  units  of  time — the 
day,  the  month,  and  the  half-year — and  each  of  these  has  its  his- 
torical record,  its  counterbalancing  proofs,  and  its  final  statement  of 
results  or  balance  sheet.  The  daily  transactions  are  brought  to  a 
focus  upon  the  page  of  the  daily  cash  book,  and  are  also  repeated 
in  various  forms  in  special  ledgers,  namely,  the  deposit  ledger,  mort- 
gage ledger,  loan  ledger,  stocks  ledger,  real  estate  ledger,  rent 
ledger.  For  information,  there  is  also  kept  in  the  daily  cash  book, 
below  the  cash  entries,  a  daily  statement  of  profit  and  loss  and  a 
daily  balance  sheet,  so  that  at  the  close  of  each  day  the  exact 
status  of  the  bank,  as  near  as  can  be  ascertained,  is  recorded. 

An  accurate  account  is  kept,  in  this  book  only,  of  the  interest,  to 
the  nearest  fraction  of  a  cent  which  is  earned  on  each  class  of  in- 
vestment, and  this  is  added  to  the  accrued  interest  account  daily, 
and  also  credited  the  income  account.  Similarly  the  accretion  of 
rents  and  any  other  profits  is  recorded.  On  the  other  hand,  the 
exact  daily  amount  is  apportioned  for  payment  of  salaries,  of  taxes, 
of  dividend  as  estimated,  of  general  expenses,  and  for  the  extinction 
of  the  premium  on  bonds  as  they  approach  maturity. 

Each  of  these  elements  produces  its  effect  on  the  profit  and  loss 
or  surplus  account,  and  equally  on  some  branch  of  the  resources  or 
liabilities,  actual  or  estimated,  so  that  the  business  of  the  day  re- 
sults in  a  balance  sheet,  the  cash  transactions  appearing  above,  be- 
ing, of  course,  taken  into  consideration. 

The  balance  of  each  department  of  the  cash,  and  also  of  the  cash 
as  a  whole,  is  also  verified  daily.  The  monthly  work  consists  in 
the  aggregation,  by  the  means  already  explained,  of  all  the  events 
of  the  month  into  two  sets  of  columns,  which  give  the  general 


1 86  PRACTICAL    BANKING. 

condition.  These  totals,  when  posted  to  the  general  ledger,  form 
the  basis  of  its  trial  balance.  The  trial  balance  of  the  general 
ledger  is  not  precisely  identical  with  the  balance  sheet  contained 
in  the  daily  cash  under  the  last  day  of  the  month,  for  this  reason : 
The  general  ledger,  in  its  current  or  normal  state,  is  kept  on  the 
basis  of  cost.  No  profit  or  loss,  by  depreciation  or  appreciation,  is 
recognized  until  realized  by  the  actual  disposition  of  the  proceeds. 
Hence,  the  trial  balance  of  the  general  ledger  is  a  balance  sheet 
on  the  cost  basis,  while  the  daily  balance  sheet  is  on  the  basis  of 
present  market  values. 

The  secretary  completes  his  monthly  work  by  making  up,  from 
the  figures  thus  obtained,  the  reports  to  be  submitted  to  the  next 
following  meeting  of  the  board  of  trustees.  At  the  monthly  meet- 
ings in  June  and  December,  being  the  last  months  of  the  half 
years,  it  is  required  by  law  that  the  dividends  be  fixed  according 
to  the  profits  earned.  It  is  therefore  necessary  for  an  estimate  of 
the  earnings  and  expenditures  of  the  half  year  to  be  submitted,  as 
a  basis  of  this  dividend.  This  can  very  readily  be  done,  as  five- 
sixths,  or  nearly  eleven-twelfths  of  the  period  have  elapsed.  At 
this  meeting,  therefore,  the  secretary  submits  such  an  estimate, 
showing,  as  its  result,  the  rate  of  dividend  which  can  be  allowed, 
usually  leaving  a  margin  to  be  added  to  the  surplus.  The  board 
then  votes  upon  the  dividend,  and  the  secretary  issues  orders  to 
the  bookkeepers  to  make  the  calculations  at  the  prescribed  rate. 
At  the  same  meeting  the  examining  committee  is  appointed,  and 
this  is  the  first  step  in  the  preparation  of  the  semi-annual  official 
reports.  It  is  necessary  that  every  facility  be  provided  for  this 
committee  to  examine  in  detail,  as  far  as  advisable,  the  exact  con- 
dition of  the  bank.  The  secretary  prepares  a  balance  sheet  in 
blank,  containing  headings  and  spaces  for  all  the  departments,  of  re- 
sources, of  liabilities,  and  the  surplus,  with  their  several  values.  He 
also  prepares  numerous  blank  schedules,  each  referring  to  one  of 
these  departments,  and  giving  the  individual  units  which  make  it 
up.  Thus,  under  the  head  of  stock  investments,  Schedule  C,  for 
instance,  would  be  given  the  following  information  :  Title  of  stock 
and  by  whom  issued  ;  rate  of  interest ;  year  of  maturity ;  amount  at 
par ;  cost ;  present  market  rate ;  present  market  value ;  interest  paid 
to  what  date;  amount  of  interest  earned  but  uncollected. 

As  the  last  day  of  the  month  approaches,  at  the  close  of  which 
it  is  the  duty  of  this  committee  to  make  its  examination,  the  sec- 
retary begins  to  fill  in  the  figures  of  these  schedules,  first,  of  course, 
in  those  departments  in  which  there  is  the  least  chance  of  a  change 
occurring.  Thus,  if  it  is  not  probable  that  there  will  be  any  fur- 
ther purchase  or  sales  of  stocks  and  bonds,  the  stock  schedule  can 
be  filled  up  as  to  all  the  particulars,  except  "  market  rate "  and 
'  market  value."  In  order  to  ascertain  the  market  rate  of  such  se- 


THE  SECRETARY.  187 

curities,  recourse  must  be  had,  where  possible,  to  published  quota- 
tions or  to  the  opinions  of  experts.  The  secretary  usually  sends,  a 
few  days  beforehand,  to  several  firms  of  respectable  brokers  who 
make  a  specialty  of  dealing  in  public  investment  stocks,  a  list  of  the 
kinds  of  securities  held  by  the  bank,  giving  the  title,  date  of  maturity 
and  the  rate  of  interest,  and  requesting  a  reply  in  the  margin  to  the 
question,  "  What  would  be  a  fair  market  value  for  each  of  these 

classes  of  securities  at  the  close  of  business  on  the  last  day  of ?" 

These  are  filled  up  and  returned  by  the  brokers  on  the  last  day,  for 
the  information  of  the  committee.  Other  departments  of  resources 
also  require  corroborative  evidence,  which  it  is  the  duty  of  the  sec- 
retary to  procure.  As  to  balances  deposited  in  banks,  he  requests 
the  cashier  of  each  depository  bank  to  certify  the  balance  on  de- 
posit at  the  close  of  the  month  to  the  chairman  of  the  committee 
direct.  In  case  the  amount  thus  certified  differs  from  the  amount 
appearing  on  the  check  book,  it  is  the  duty  of  the  secretary  to  ex- 
plain and  to  furnish  evidence  of  the  disparity,  which  usually  arises 
from  checks  issued  but  not  yet  presented,  and  the  committee  should, 
during  the  following  month,  or  whenever  it  can  be  done,  make  a 
re-examination  of  the  checks  which  were  outstanding.  If  there  be 
any  papers  in  the  mortgage  department  which  the  committee  is  en- 
titled to  see,  and  which  are  in  the  hands  of  the  attorney  for  the 
purpose  of  foreclosure  or  otherwise,  a  certificate  of  their  contents 
must  be  furnished  by  the  attorney.  As  to  real  estate  owned  by  the 
bank,  if  necessary,  a  disinterested  appraiser,  experienced  in  real  estate 
values,  should  be  employed  to  make  a  survey  and  report ;  and  this 
should  also  be  done  in  the  case  of  mortgaged  property,  if  there  has 
been  such  depreciation  as  to  make  the  margin  precarious.  All  of 
these  preparations,  although  part  of  the  committee's  work,  are,  in 
practice,  attended  to  by  the  secretary  in  order  to  lessen  the  burden 
of  labor  for  the  committee.  Besides  the  report  of  the  committee  to 
the  board  of  trustees,  there  is  an  official  report  to  the  superintend- 
ent of  the  bank  department,  which  is  required  by  law  to  be  made 
semi-annually  at  the  dates  mentioned.  The  body  of  this  report,  or 
balance  sheet,  is  verified  by  the  oath  of  the  examining  committee, 
and  is  identical  with  the  balance  sheet  contained  in  their  report  to 
the  board  of  trustees.  The  report  however,  is  submitted  and  sworn 
to  in  its  entirety  by  the  president  and  secretary,  and  is  prepared  by 
the  secretary  from  his  books.  The  main  report  or  balance  sheet, 
just  described,  contains,  in  the  blank  form  furnished  by  the  State 
department,  a  column  headed  "resources,"  and  another  headed  "lia- 
bilities." 

Besides  the  main  report  above  given  there  is  a  summary  of  cash 
transactions  for  the  half  year,  or  in  the  December  report  for  the 
whole  year,  and  schedules,  marked  from  A  to  I. 

The  table  of  cash  transactions  begins  with  the   balance   on  hand 


l88  PRACTICAL    BANKING. 

and  in  banks  at  the  commencement  of  the  period,  to  which  are 
added  the  receipts,  classified  according  to  their  sources.  Then  fol- 
low, on  the  other  side,  the  payments  similarly  classified,  conclud- 
ing with  the  balance  on  hand  and  in  banks  at  the  close  of  the 
period.  Under  our  system,  these  aggregates  are  readily  obtained 
from  the  bundles  of  cash  vouchers  for  receipts  and  payments,  respec- 
tively, being  in  most  cases  simply  an  adding  together  of  the  six 
monthly  totals.  In  some  of  the  particulars  a  little  analysis  is  nec- 
essary from  the  wording  of  the  blank,  some  items  not  exactly  co- 
inciding with  either  of  the  accounts  kept  in  the  General  Ledger  of 
the  bank.  It  is,  however,  a  principle  in  this  institution,  that  every 
official  report  must  have  its  figures,  in  some  shape,  derived  from  the 
books  of  the  bank.  It  is  too  frequently  the  custom,  in  institu- 
tions of  this  kind,  and  perhaps  of  other  kinds,  that  the  sworn  re- 
ports are  made  independently  of  the  books,  and  that  there  is  no 
way  of  directly  tracing  the  connection  between  the  two.  As  dupli- 
cate blanks  are  furnished  by  the  department,  in  order  that  the 
bank  may  retain  a  copy  of  its  official  report,  it  is  the  practice 
in  some  banks  to  make  references,  by  book  and  page,  on  the  face 
of  the  copy  retained,  which  will  show  precisely  how  the  figures 
are  obtained  from  the  books.  These  schedules  are  given  in  the  ap- 
pendix. 

Schedule  A,  No.  I,  contains  a  list  of  mortgages  taken  during  the 
period  covered,  with  the  valuation  of  the  property  mortgaged  as 
security,  and  serves  as  a  general  mortgage  account,  corroborating 
item  i  of  the  resources. 

Schedule  A,  No.  2,  contains  a  list  of  mortgages  paid  off,  in  whole 
or  in  part,  during  the  period  covered. 

The  theory  of  these  two  reports  is  to  enable  the  department  to 
ascertain  the  amount  out  on  mortgage,  and  the  security  therefor; 
but  to  make  up  such  a  statement  from  the  schedules  of  many 
years,  would  be  a  very  laborious  process.  It  would  seem  prefer- 
able, that  occasionally,  say  once  in  three  or  five  years,  a  special 
report  should  be  called  for,  giving  a  full  list  of  the  mortgages  as 
they  then  existed,  with  the  location  of  property,  and  an  appraisal, 
which  the  department  could  verify  at  its  leisure. 

Schedule  A  No.  3,  is  a  special  list  of  those  mortgages,  the  interest 
on  which  is  more  than  six  months  in  arrears.  By  the  law,  in  the 
State  of  New  York,  any  mortgages,  on  which  the  interest  is  not 
more  than  six  months  in  arrears,  are  to  be  taken  at  their  full 
value,  and  the  superintendent  has  a  right,  in  case  of  the  mort- 
gages comprised  in  Schedule  A,  No.  3,  to  affix  a  value.  It  is  not 
known  that  he  has  in  any  case  made  such  a  valuation.  In  a  pros- 
perous bank,  in  ordinary  times,  this  schedule  should  be  blank. 

Schedule  B  is  a  list  of  the  bonds  or  stock  investments  of  the 
institution,  and  its  arrangement  is  commendable.  In  the  case  of 


THE   SECRETARY.  1 89* 

stocks  and  bonds,  a  different  plan  is  pursued  from  the  one  adopted 
in  reference  to  mortgages.  In  mortgages,  the  increase  and  decrease 
during  the  period  are  alone  considered.  In  stocks,  the  increase 
and  decrease  are  entirely  disregarded,  and  only  the  final  status  given. 
This  would  seem  a  defect,  as  there  is  far  more  opportunity  for 
covering  up  frauds  by  exchange,  barter,  purchase  and  re-sale  of  se- 
curities, than  mortgages.  Every  purchase,  and  every  sale  of  stock 
securities  during  the  period,  should  be  reported,  with  dates  and 
prices. 

Schedule  B  is  recapitulated  on  a  smaller  blank  for  the  conveni- 
ence of  the  department. 

Schedule  C  is  headed  "  stocks  upon  which  loans  are  made  in 
accordance  with  section  261,"  a  rather  inverted  title,  as  the  primary 
object  is  to  give  the  amount  loaned  upon  stocks. 

Schedule  D  gives  the  details  of  cash ;  first,  as  to  that  deposited 
in  banks  and  trust  companies,  not  only  is  the  amount  on  deposit 
stated,  but  also  the  capital  and  surplus  of  the  depositary  bank,  as 
shown  by  its  last  official  statement.  The  reason  for  demanding  this 
information  is,  that  a  Savings  bank  is  prohibited  from  depositing  in 
any  bank  or  trust  company  more  than  a  certain  proportion  (twenty- 
five  per  cent.)  of  the  capital  and  surplus  of  the  latter. 

Schedule  E,  No.  i,  is  intended  for  those  investments  which  are 
contrary  to  the  present  law  governing  Savings  banks.  Only  in  case 
the  bank  has  had  such  investments  before  the  change  of  the  law, 
which  it  has  not  been  able  to  dispose  of,  can  there  be  anything 
to  enter  in  this  schedule. 

Schedule  E,  No.  2,  is  devoted  to  assets  other  than  those  enumer- 
ated, and  would  be  very  appropriate  for  miscellaneous  and  abnor- 
mal resources,  but  the  bank  department  has  included  in  it  also, 
interest  earned  but  uncollected,  which  is  not  an  abnormal  resource, 
but  one  which  must  exist  in  every  Savings  bank.  There  must 
always  be  interest  which  is  earned  and  not  collected,  and  it  would 
therefore  have  seemed  more  appropriate  to  provide  a  separate 
schedule,  under  the  head  of  income  earned  but  uncollected,  for  in- 
terest and  rents.  Interest  is  divided  into  accrued  and  due,  and  the 
interest  overdue  is  divided  into  that  which  is  overdue  less  than  six 
months  and  more  than  six  months,  and,  finally  the  total  is  divided 
into  collectable  and  un collectable,  and  the  collectable  portion  is  ex- 
tended into  the  principal  money  column.  The  remainder  of  the 
blank  is  for  miscellaneous  assets,  other  than  income. 

Schedule  F  contains  a  classified  account  of  the  current  expenses 
of  the  bank  for  the  period,  such  as  salary,  taxes,  insurance,  re- 
pairs, stationery,  advertising,  &c.  The  numbering  of  the  schedules, 
which,  previous  to  this  point,  was  regular,  now  becomes  arbitrary, 
as  different  schedules  have  been  inserted  according  to  the  views  of 
different  officials. 


190  PRACTICAL    BANKING. 

Schedule  G  contains  payments  of  all  kinds  not  otherwise  stated. 
It  is  difficult  to  see  why  there  should  not  have  been  a  similar 
schedule  of  receipts  of  all  kinds  not  otherwise  stated,  or  a  schedule 
of  both. 

In  Schedule  H  we  again  return  to  resources.  This  contains  a  de- 
scription of  all  real  estate  owned  by  the  bank,  whether  for  banking 
purposes  or  purchased  under  foreclosure  sale,  giving  the  location, 
how  acquired,  when  acquired,  original  cost,  present  appraised  value, 
amount  of  income  derived  during  the  period,  amount  of  expendi- 
tures on  it  during  the  period.  Only  one  of  these  columns  demands 
special  remark — the  one  giving  the  cost.  There  is  a  difference  of 
,  opinion  as  to  what  constitutes  the  cost  of  a  piece  of  property 
bought  in  at  foreclosure  sale  for  less  than  the  face  of  the  mort- 
gage, and  other  charges. 

First. — It  is  the  usual  way  to  consider  that  the  entire  amount  of 
the  mortgage,  interest,  taxes,  legal  costs — that  is  to  say,  the  entire 
cost  of  the  mortgage  investment  is  also  the  cost  of  the  real  estate. 
For  example, 

The  face  of  the  mortgage  is $  10,000. 

The  interest  is 600 . 

The  bank  has  paid  taxes 230. 

Insurance 42 . 

And  cost  of  suit , , 325 . 

$11,197. 

Now,  under  the  present  view,  this  $11,197  would  be  considered 
the  cost  of  the  real  estate  bid  in,  regardless  of  what  the  bidding 
price  was,  and  regardless  of  what  it  was  really  worth.  But,  suppose 
the  property  is  offered  at  public  -sale,  and  the  bank  bids  $  9,000,  no 
one  offering  more,  then, 

Second. — I  hold  to  the  opinion  that  the  cost  or  purchase  price  of 
this  piece  of  real  estate  is  not  $11,197,  but  $9,000.  It  is  true  that 
the  entire  investment  was  $11,197,  but  what  have  we  done?  We 
have  taken,  in  part  satisfaction  of  our  claim,  a  house  worth  $9,000, 
and  for  which  no  one  else  has  bid  more.  The  remaining  $2,197 
is  not  wiped  out.  We  have  a  deficiency  judgment  for  it  against 
the  bondsman.  If  this  proves  worthless,  of  course  we  lose  the 
$2,197;  but  that  is  not  to  bz  assumed  prima  facie.  Suppose 
another  person  had  bid  $9,000,  and  we,  thinking  that  the  full  price, 
had  let  it  go,  would  he,  the  purchaser,  consider  the  property  worth 
any  more  than  $9,000?  He  does  not  know  of  our  claim;  $9,000 
represents  to  him  the  entire  cost.  We,  on  the  other  hand  would 
have  still  the  deficiency  judgment  for  $2,197.  Possibly  this  is 
worthless.  If  so,  it  is  our  loss ;  but  the  loss  is  on  the  bond,  not 
on  the  real  estate.  When  we  buy  in  the  property  we  happen  ac- 
cidentally to  be  the  purchaser  and,  at  the  same  time,  the  judgment 


THE  SECRETARY.  19! 

creditor;  but  this  should  not  merge  in  one  two  entirely  different 
transactions.  Suppose,  after  buying  the  property  for  $9,000,  we  sell 
it  for  $10,000.  This  gain  of  $1,000  does  not  lessen  our  claim  on 
the  deficiency  judgment.  If  the  debtor  should  be,  or  should  become, 
solvent,  we  can  still  collect  of  him  the  full  amount.  The  rise  of 
$1,000  is  our  gain.  But  how  can  it  be  a  gain  if  the  cost  was 
$11,197?  I  am  aware  that  in  this  opinion  I  am  nearly  single- 
handed  against  all  parties  and  current  opinion,  but  believe  that  my 
view  is  strictly  correct. 

Schedule  I  is  a  miscellaneous  one,  and  very  crudely  constructed. 
Before  the  statement  of  cash  transactions  was  prescribed,  Schedule  I 
contained  questions  eliciting  much  of  the  information  which  is  now 
contained  in  that  statement.  Therefore,  its  present  contents  are,  to 
some  extent,  a  repetition  of  what  has  already  been  given  in  the 
statement  of  cash  transactions,  and  to  some  extent  contains  matter 
which  more  properly  belonged  there.  All  statistics  which  relate  to 
financial  values  should  be  grouped  either  under  the  resources  or  the 
liabilities,  or  the  receipts,  or  the  payments,  not  in  a  miscellaneous 
schedule  which  contains  such  items  as  the  number  of  trustees  and 
the  number  who  have  attended  each  meeting.  In  this  schedule  oc- 
curs the  question,  "Date  of  taking  last  abstract  of  balances  due  de- 
positors as  shown  by  depositors'  ledgers,"  and  "What  was  the 
amount  of  the  discrepancy,  if  any,  between  the  aggregate  of  such 
balances  and  the  amount  shown  by  the  general  ledger  due  to  de- 
positors at  the  sajne  date  ?  " 

The  law  requires,  what  a  prudent  bank  would  of  its  own  accord 
prescribe,  that  an  accurate  list  or  balance  of  amounts  due  deposit- 
ors shall  be  taken  at  least  once  in  six  months,  and  that  the  dis- 
crepancies, if  any,  found  on  that  occasion  be  reported  to  the  super- 
intendent. The  process  of  this  balance  might  have  been  described 
under  the  bookkeeper's  department.  It  has  there  been  stated  that 
the  balance  due  each  depositor  is  proved  whenever  there  is  a 
change,  so  that,  substantially,  the  ledgers  are  always  in  a  state  of 
proved  accuracy  as  to  individual  balances.  We  have  also  seen  that 
each  month  the  aggregate  amount  due  the  depositors  of  each  ledger 
is  ascertained,  and  that  by  aggregating  these  the  grand  total,  as  shown 
by  the  general  ledger,  is  corroborated.  These  processes  continue 
during  the  half  year,  and  the  results  of  monthly  reports  are  entered 
in  a  book  kept  by  the  secretary  called  Ledger  Balances.  At  the  end 
of  six  months  there  is  an  additional  column  for  dividend,  and,  in- 
cluding this,  the  balance  due  depositors  is  again  ascertained,  and 
this  is  the  basis  of  the  semi-annual  trial  balance  required  by  law. 
Each  of  the  ledgers,  from  one  to  thirty,  ought  to  show  a  certain 
amount  of  aggregate  balances,  and  this  list,  added  together  in  the 
book  called  Ledger  Balances,  equals  the  amount  reported  to  the 
bank  department  as  due  depositors  on  the  ist  day  of  January  or 


Ip2  PRACTICAL   BANKING. 

July.  Each  bookkeeper  transcribes  into  the  book  already  mentioned 
under  the  name  of  "interest  and  balance  book,"  opposite  the  proper 
number,  the  amount  owing  to  each  depositor.  Having  done  this, 
and  carefully  compared  it,  he  adds  the  entire  amount  together,  and, 
if  perfectly  correct  in  every  respect,  the  sum  total  should  equal  the 
corresponding  line  in  the  ledger  balances.  If  it  does  not  so  equal, 
there  is  probably  an  error,  either  in  transcribing  some  amount,  or 
in  adding  up  some  page,  or  in  adding  the  interest  to  the  previous 
balance.  It  might  be  mentioned  that  the  work  is  facilitated  by 
writing  in  red  ink,  in  the  balance  column,  the  result  produced  by 
crediting  the  dividend.  It  has  been  found  by  experience  that  any 
partial  method  of  examination,  in  order  to  find  the  reason  of  any 
discrepancy,  is  ineffectual.  Such  methods  we  call  "stabbing."  We 
have  an  exhaustive  method,  which  we  call  "taking  off  drafts  and  de- 
posits." It  consists  in  taking  the  original  tickets  of  all  the  transac- 
tions of  six  months,  and  assorting  them  in  a  mass,  numerically,  so 
that,  for  example,  in  ledger  27,  the  transactions  of  six  months  will 
be  represented  by  two  series  of  tickets,  the  deposit  tickets  begin- 
ning with  the  deposits  on  account  No.  135,001,  and  ending  with 
the  deposits  on  account  No.  140,000.  The  draft  tickets  form  a 
separate  series,  beginning  and  ending  in  the  same  way.  When  this 
assorting  is  completed,  we  copy  off  each  of  these  series  of  tickets 
by  amounts  only,  but  we  do  this  in  sections.  Suppose  the  first 
page  of  the  interest  and  balance  book  comprises  Nos.  135,001  to 
135,050,  then  we  write  down  all  the  deposits  in  the  same  compass, 
and  take  their  total.  We  write  down  all  the  drafts  in  the  same 
compass,  and  take  their  total,  Then  we  f6rm  an  equation  thus : 
Old  balance  -f-  deposits  +  dividend=drafts  -f-  new  balance.  Or,  in 
another  form :  Old  balance  +  deposits  +  interest— drafts=new 
balance.  If  this  equation  holds  good,  the  first  page  is  considered 
correct,  or  proved.  Then  we  go  on  to  the  second  page,  and  so  on. 
Probably  we  discover  by  this  process  the  whole  or  a  part  of  the 
discrepancy  by  the  time  we  reach  the  end.  If  not,  we  put  together 
the  totals ;  that  is,  we  arrange  the  page  footings  in  tabular  form  in 
five  columns,  so  that  by  footing  these  columns  we  obtain  of  the 
entire  ledger  the  same  equation :  Old  balance  +  deposits  +  inter- 
est=drafts  -|-  new  balance.  This  ought  to  prove.  If  it  does  not, 
some  one  of  the  pages  which  we  believed  to  be  in  proof  has  really 
been  out  of  balance.  Having  brought  this  final  equation  to  an  ad- 
justment, our  next  step  is  to  ascertain  in  which  column  the  error 
is.  We  have  an  independent  statement  of  every  one  of  these  col- 
umns, and  we  make  the  comparison  of  each  in  succession.  The 
old  balance  we  have  before  us  in  the  same  book — the  interest  like- 
wise, and  the  new  balance.  If  one  of  the  two  former  of  these  is 
incorrect,  the  defect  is  soon  remedied,  but  when  these  two  columns 
have  been  corrected,  we  still  have  the  drafts  and  the  deposits. 


THE  SECRETARY.  193 

To  find  the  total  drafts  of  six  months,  add  together  the  drafts  of 
January,  February,  March,  April,  May,  and  June  successively,  and 
similarly  with  the  deposits.  Now,  this  gives  us  a  test  of  the  second 
and  fourth  columns  of  our  final  equation.  If,  at  last,  we  find  that 
the  error  is  in  one  of  these,  we  first  go  back,  comparing  the  tick- 
ets with  our  transcription  of  them.  If  this  fails  to  discover  the 
error,  it  may  be  necessary  to  re-assort  the  delinquent  tickets,  either 
draft  or  deposit,  by  months,  and  ascertain  in  which  month  the 
error  occurs.  Having  located  it  in  the  month,  it  may  be  necessary 
to  re-assort  that  month  by  days,  and  locate  it  by  the  tickets.  But 
ultimately  we  must  find  it.  The  process  is  absolutely  exhaustive. 

The  second  question  propounded  by  the  bank  department  as  to 
the  balance  is,  what  is  the  amount  of  the  discrepancy  ?  One  of  the 
New  York  banks  constantly  reports  at  present,  "  Old  discrepancy  prior 
to  April  13,  1874,  $2,386.08."  For  some  years  this  has  not  varied.  The 
following  is  its  history :  Up  to  the  date  mentioned  there  had  been 
no  accurate  balances  of  the  depositors'  ledgers.  While  the  bank 
was  small,  the  importance  of  searching  out  and  correcting  the 
minute  errors  which  then  existed  was  not  understood.  The  first 
trial  balance  taken  was  about  $50  out  of  the  way.  The  accounts 
were  only  a  few  hundred  in  number.  It  would  have  been  an  easy 
matter  to  analyze  the  work  up  to  that  point  and  to  have  discov- 
ered the  error,  but  it  was  thought  near  enough.  These  two  words, 
"near  enough,"  are  the  most  dangerous  that  can  be  used  in  book- 
keeping, for  an  error  which  is  apparently  near  enough  may  be  the 
resultant  of  opposing  errors  each  of  large  extent,  and  one  of  which 
will  threaten  danger.  Presumably,  the  labor  of  finding  this  first  dif- 
ference was  postponed  until  a  more  convenient  season.  As  the 
work  increased,  this  search,  which  was  the  business  of  nobody  in 
particular,  became  less  and  less  likely  to  be  effected,  and  the  next 
year  rolled  around,  and  it  came  time  for  another  trial  balance. 
Now  the  number  of  depositors  had  largely  increased,  and  it  was 
said,  "  Never  mind  the  old  error ;  it  will  probably  turn  up  this 
time."  Nobody  knows  whether  it  turned  up  or  not,  because  the 
error  this  time  was  over  $  100  on  the  opposite  side,  so  out  of  the 
mud  we  had  got  into  the  quicksand.  Each  year  the  same  trial  at 
a  balance  was  made,  and  with  the  same  lack  of  success,  ending 
with  the  same  motto  which  was  at  first  inscribed  on  our  banner, 
"Near  Enough."  Near  enough  one  time  meant  $6,000  until  a  few 
months  later  it  was  found  that  a  little  error  of  $13,000  in  a  semi- 
annual dividend  had  been  made,  which  brought  the  "  near  enough " 
to  $7,000  the  other  way.  Some  radical  spirit  among  the  book- 
keepers became  dissatisfied  with  this  erroneous  discrepancy,  and  be- 
gan to  think  that  it  was  better  to  undertake  a  great  deal  more 
labor,  and  to  know  at  least  that  the  current  work  of  the  bank  was 
proceeding  correctly;  so,  on  the  I3th  of  April,  1874,  they  divided 


194  PRACTICAL   BANKING. 

the  ledgers  among  themselves,  and  commenced,  in  an  imperfect 
way,  to  keep  each  ledger  in  balance  as  an  independent  equation, 
and  to  actually  search  out  all  the  errors  in  each  ledger.  It  is  true 
this  was  somewhat  like  the  proverbial  needle  and  haystack,  but  the 
difference  was  that  the  haystack  was  very  much  smaller.  Gradually 
the  system  has  been  improved  in  simplicity  and  effectiveness  until 
the  present  time,  and  the  old  discrepancy  of  $2,386.08  is  the  relic 
of  the  old  errors.  This  may  some  time  all  be  found,  but  the  prob- 
abilities are  that  it  will  not.  The  present  Secretary  began,  a  few 
years  ago,  a  process  of  bridging  over  the  period  of  chaos  by  be- 
ginning to  do  what  was  not  done  twenty  years  ago,  namely,  to  take 
an  accurate  trial  balance  of  the  work  at  the  end  of  each  half- 
year.  Three  of  the  years  have  thus  been  completed,  but  the  pro- 
cess of  going  through  the  remaining  fourteen  years  involves  colos- 
sal labor.  Possibly  it  may  at  some  time  be  thought  worth  while 
to  employ  a  special  corps  of  clerks  to  do  this.  As  an  illustration 
of  how  deceptive  the  "  near  enough "  principle  is,  it  may  be  men- 
tioned that  at  one  time  our  discrepancy  was  only  $700 — apparently. 
The  discrepancy  account  had,  by  successive  finds,  worked  down  to 
this  point,  when,  by  pure  accident,  it  was  discovered  that  the 
amount  in  the  general  ledger,  which  had  been  considered  as  the 
standard,  or  norm,  was  itself  $  10,000  away  from  the  truth  by  a  sin- 
gle error.  This  startling  discovery  was  enough  to  unsettle  the 
minds  of  the  most  fanatical  adherent  of  the  "  near  enough  "  theory. 
A  search  was  made  through  the  mouldering  pass-books,  thousands 
and  thousands  of  which,  having  been  closed  and  surrendered,  were 
lying  in  numerical  order  in  the  cellar.  Luckily  they  had  been  pre- 
served. By  comparing  them  with  the  ledger  it  was  found  that 
about  $8,000  of  principal  stood  open  on  the  ledgers  of  the  bank, 
when,  in  reality,  the  accounts  had  been  entirely  closed.  A  dishon- 
est employee  might,  by  discovering  these  and  compromising  with 
the  depositor,  have  abstracted  a  large  amount,  especially  as  the  ac- 
crued interest  on  the  same  amounted  to  over  $6,000.  At  one 
stroke,  by  the  closing  of  these  accounts,  there  was  a  gain  to  the 
surplus  of  the  bank  of  more  than  $  14,000,  and  the  effect  upon  the 
discrepancy  account  was  to  bring  it  to  2,300  and  odd  dollars. 
Very  little  has  been  found  since  that  time,  but  it  is  considered  a 
matter  of  duty  to  report  the  amount  every  six  months  to  the  bank 
department.  It  has  often  been  suggested,  Why  not  close  this  ac- 
count into  profit  and  loss?  The  answer  is  that  an  error  might  be 
discovered  the  very  next  day,  which  would  require  its  re-opening, 
and  that  it  is  better  to  leave  the  account  open  forever  if  neces- 
sary, or  until  the  last  cent  of  discrepancy  of  those  fourteen  years 
has  been  discovered.  This  story  of  error  has  been  related,  because 
history  has  so  often  repeated  itself  on  this  point.  The  writer  has 
Jbeen  surprised  to  find  how  many  large  institutions  have  had  almost 


THE  SECRETARY.  195 

the  identical  experience,  and  the  old,  old  story  of  beginning  busi- 
ness with  a  small  force,  and  with  a  system  which  was  not  expan- 
sive, and  which  was  soon  outgrown.  The  Bowery  Savings  Bank, 
which  is  the  largest  in  America,  perhaps  in  the  world,  only  sub- 
divided its  work  and  took  a  new  departure  with  a  large  discrep- 
ancy within  five  years;  and  at  this  moment  the  Bleecker  Street 
Savings  Bank  is  still  operating,  on  its  initial  or  fundamental  bal- 
ance, for'  a  new  system  ;  a  balance  taken  in  the  air,  so  to  speak, 
as  a  point  of  departure.  A  clerk  in  an  old  Savings  bank  in  Salem, 
Mass.,  was  relating  to  the  writer  only  a  few  weeks  ago  the  history 
of  the  bookkeeping  of  his  bank,  which  was  almost  word  for  word 
like  the  one  given  above,  even  to  the  disinterring  of  the  old  pass- 
books from  the  cellar,  with  this  further  incident  that  in  the  Salem 
case  the  pass-books  were  unclassified  and  lay  in  mouldy  heaps.  This 
embellishment  was  lacking  in  the  case  cited  above. 


196  PRACTICAL    BANKING. 


CHAPTER    IX. 
THE    PRESIDENT. 

In  many  Savings  banks  the  duties  which  have  been  described  as 
shared  between  the  treasurer  and  secretary,  are  divided  between  the 
president  and  treasurer,  or  the  president  and  secretary.  The  pre- 
sident is  usually  not  a  salaried  officer,  and  in  that  case  his  duties- 
are  practically  confined  to  presiding  at  the  monthly  meetings.  He 
is  rather  president  of  the  board  of  trustees  than  president  of  the 
bank.  In  other  institutions  he  receives  a  small  salary,  attends 
daily,  but  not  during  the  entire  session,  and  has  no  routine  duties, 
but  superintends  and  advises  in  all  departments.  He  is  required  by 
the  by-laws  to  execute  all  deeds,  releases,  satisfactions,  or  other 
documents  in  the  nature  of  a  conveyance  of  real  estate,  and  to 
countersign  all  checks.  Although  it  may  seem  wasteful  to  employ 
an  officer  of  a  corporation  with  no  stated  routine  duties,  yet  where 
the  trust  is  large  the  writer  thinks  emphatically  that  this  should  be 
the  case — that  the  duties  of  the  highest  officer  should  be  entirely 
discretionary  with  himself,  and  that  he  should  possess  such  an  inti- 
mate and  also  such  a  broad  knowledge  of  the  business  that  he  him- 
self is  the  best  judge  of  what  department  needs  his  personal  atten- 
tion, and  that  he  himself  ean  be  held  responsible  for  everything. 


THE    BOARD    OF    TRUSTEES.  197 


CHAPTER  X. 
THE    BOARD    OP    TRUSTEES. 

This  body  is  the  ultimate  governing  power  of  the  bank.  It  is 
the  final  jurisdiction,  from  which  there  is  no  appeal  within  the 
bank,  and  in  fact  there  is  no  appeal  whatever,  for  the  only  remedy 
in  case  of  wrong-doing  is  to  punish  the  trustees  personally,  and  to 
remove  them,  which,  however,  would  not  act  as  a  reversal  of  their 
decisions.  They  are  supreme,  and  responsible  only  to  the  people  of 
the  State,  through  their  representative,  the  Superintendent  of  the 
Banking  Department.  The  board  of  trustees  consists  of  not  less 
than  fifteen  nor  more  than  twenty  members.  Under  the  State  law, 
not  less  than  thirteen  is  requisite.  The  board  elects  to  fill  its  own 
vacancies  occurring  by  death,  resignation,  or  neglect  of  duty  for 
«ix  months,  and  its  actions  in  this  respect  cannot  be  questioned 
if  the  record  is  clear. 

Seven  members  of  the  board  constitute  a  quorum,  provided  the 
president,  or  one  of  the  vice-presidents,  be  among  the  number.  The 
entire  government  of  the  affairs  of  the  bank,  from  the  most  minute 
\  detail  up,  is  vested  in  the  board  of  trustees.  The  powers,  which 
practically  are  exercised  by  the  executive  officers  of  the  bank  dur- 
ing the  intervals  between  the  sessions  of  the  board,  are  those  dele- 
gated to  them  by  the  board,  as  expressed  in  its  by-laws.  Some  of 
the  duties  cannot  be  delegated.  A  loan  on  mortgage  can  only  be 
made  upon  vote  of  the  board,  based  upon  the  report  of  the  com- 
mittee. The  rate  of  dividend  can  only  be  declared  by  the  board  at 
its  annual  or  semi-annual  meeting,  and  this  vote  must  be  recorded 
by  ayes  and  noes.  If  a  dividend  exceeding  the  accumulated  earn- 
ings should  be  declared,  it  would  stand  as  regards  each  individual 
depositor,  but  the  trustees  voting  for  it  would  be  personally  liable 
for  the  amount  of  the  excess.  The  election  of  officers  and  commit- 
tees is  another  duty  which  must  be  exercised  by  the  board  itself. 
With  these  exceptions,  the  government  of  the  bank  is  discretionary 
as  to  means  with  the  board  of  trustees,  and  they  may  delegate  so 
much  of  their  powers  as  they  desire.  It  becomes  impracticable  to 
do  otherwise  as  regards  the  routine  business  of  the  bank,  and  the 
transactions  in  those  investments  which  are  of  a  less  permanent 
character  than  upon  real  estate  security.  Even  the  restriction  as  to 


198  PRACTICAL    BANKING. 

loans  on  mortgage  is  found  a  serious  inconvenience,  and  is  believed 
to  be  systematically  disregarded  by  many  banks.  Applications  are 
acted  upon  after  examination  by  a  committee,  but  without  previous 
submission  to  the  board.  The  more  important  of  the  committees 
usually  established  in  a  Savings  bank  are  Finance  Committee,  the 
Attending  Committee,  the  Auditing  Committee,  and  the  Examining 
Committee. 

The  Finance  Committee  is  intermediate  between  the  board  of  trus- 
tees and  the  treasurer,  and  considers  and  acts  upon  the  more  import- 
ant questions  which  arise  in  his  department. 

The  Auditing  Committee  may  be  regarded  as  bearing  a  similar  rela- 
tion to  the  secretary.  It  is  required  by  the  by-laws  to  examine  and 
audit  the  vouchers  for  all  payments.  Also  to  count  the  cash  on  hand 
at  least  once  a  month.  The  process  of  auditing  the  vouchers  has  been 
described  under  the  secretary's  duties.  It  may  be  further  said,  that 
in  so  far  as  the  audit  is  intended  as  a  check  upon  embezzlement, 
it  should  comprise  also  the  cash  receipts  as  well  as  payments.  It 
should  be  ascertained  whether  the  receipts  have  all  been  fully  ac- 
counted for.  Like  all  other  amateur  committees  of  examination,  the 
proceedings  of  this  committee  are  almost  inevitably  perfunctory. 
They  are  very  seldom  thorough — very  seldom  go  to  the  bottom  of 
the  figures  which  they  are  supposed  to  examine.  Having  ascertained 
that  a  certain  amount  of  payment  is  supported  by  the  proper 
vouchers,  they  very  seldom  even  enquire  whether  this  is  the  entire 
amount  of  payment  to  be  accounted  for,  which  simple  omission 
completely  destroys  all  utility  of  the  examination.  The  officer  whose 
work  they  are  supervising  has  only  to  withhold  all  questionable  or 
improper  vouchers  from  their  examination.  Such  committees  seldom 
take  the  time  necessary  for  the  proper  performance  of  their  duties, 
and  seldom  possess  the  ability.  They  ought,  in  justice  to  them- 
selves and  to  their  trust,  to  employ  skilled  assistants  to  point  outr 
at  least,  the  way  in  which  to  do  their  work  more  thoroughly. 

The  duty  of  the  Examining  Committee  is  to  ascertain  the  precise 
condition  of  the  bank  at  the  close  of  the  semi-annual  period.  An  idea 
of  the  manner  of  performance  of  their  duties  may  be  gathered  from 
the  description  of  the  schedules  furnished  them  by  the  secretary 
as  a  basis  of  their  examination.  One  of  their  number  makes  up 
from  the  figures  thus  ascertained  a  report  to  the  board,  analyzing 
the  history,  results,  and  prospects  of  the  institution.  This  commit- 
tee is  also  required  by  law  to  endorse  upon  the  official  report 
made  to  the  Bank  Department  their  affidavit  as  to  its  correctness, 
so  far  as  the  report  proper  or  balance  sheet  goes. 

The  Attending  Committee.  In  the  infancy  of  Savings  banks,  when 
they  were  looked  upon  as  charitable  institutions,  the  members  of  the 
board  of  trustees  attended  in  rotation  at  the  bank ;  but  what  they  did 
beyond  lending  a  general  air  of  elderly  benevolence  has  never  been 


THE   BOARD  OF  TRUSTEES.  199 

ascertained.  Where  this  custom  is  kept  up,  they  almost  invariably  sign 
their  names  in  a  large  book,  and  this  is  probably  the  most  important 
of  their  functions.  Such  attendance  inevitably  degenerates  into  a 
farce.  In  this  institution  it  has  been  abandoned.  All  members  of 
the  board  of  trustees  are  welcome  at  all  times,  and  even  if  they 
were  not  welcome,  it  would  be  their  duty  to  visit  the  bank,  and 
keep  themselves  informed.  This  many  of  them  do,  and  the  more 
irregular  this  attendance  is  in  point  of  time,  probably  the  better 
it  is. 


200  PRACTICAL   BANKING. 


CHAPTER    XI. 
THE    ATTORNEY. 

The  peculiarity  of  Anglo-Saxon  law  with  regard  to  its  arbitrary 
distinctions  between  real  and  personal  property  is  well  illustrated 
by  the  fact  that  a  Savings  bank  can  safely  effect  investments  of 
millions  in  securities  and  valuables  with  only  a  layman's  knowl- 
edge, while  it  is  impracticable  or  inadvisable  to  stir  in  the  most 
unimportant  transaction  which  regards  real  estate,  without  a  lawyer 
at  one's  elbow.  Yet  the  property  in  the  latter  case  is  more  readily 
identified  than  any  other  in  the  world.  It  is  impossible  to  coun- 
terfeit it ;  it  is  the  most  visible,  most  tangible,  most  impossible  to 
secrete,  and  most  exposed  to  the  public  eye  of  all  property.  Noth- 
ing but  the  barbarous  state  of  our  laws,  borrowed  from  a  form  of 
government  whose  policy  it  is,  of  set  purpose,  to  prevent  transfers 
and  diffusion  of  titles  in  land,  has  caused  this. 

The  attorney  of  a  Savings  bank  is  not  usually  a  salaried  officer.  The 
greater  part  of  his  services  consists  in  the  examination  of  titles  to  real 
estate,  upon  which  it  is  proposed  to  loan  on  bond  and  mortgage. 
The  law  prescribes  that  the  charges  for  such  services  shall  be  paid 
by  the  borrower.  It  would  in  many  cases  be  to  the  interest  of  the 
bank  to  pay  them  voluntarily,  in  order  to  secure  a  desirable  in- 
vestment or  a  greater  rate  of  interest,  but  the  law,  as  construed 
by  most  Savings  banks,  prevents  this. 

When  an  application  for  loan  on  bond  and  mortgage  has  been 
accepted  by  the  board  of  trustees,  the  fact  of  this  acceptance  is 
endorsed  upon  it  by  the  secretary  and  the  paper  forwarded  to  the 
attorney.  The  proposed  borrower  is  notified  to  wait  upon  the  at- 
torney with  the  papers  which  he  may  have  in  support  of  his  title. 
The  amount  charged  by  the  attorney  for  his  services  in  making 
the  examination  are  on  a  scale  fixed  by  the  customs  of  the  pro- 
fession, but  subject  to  varying  through  negotiation.  Frequently  the 
borrower,  especially  of  late  years,  goes  to  the  attorney  and  says, 
"  1  will  take  this  money  of  your  institution  provided  you  do  not 
charge  me  more  than  such  a  sum."  Generally  the  disbursements, 
that  is,  amounts  paid  to  public  officials  for  searches,  constitute  one 
portion  of  the  charge,  and  the  fee  of  the  attorney  for  the  labor 
and  responsibility  of  certificate  form  another  portion,  and  this  latter 


THE    ATTORNEY.  2OI 

is  a  fixed  or  sliding  percentage  upon  the  amount  of  loan.  In 
many  cases  the  labor  is  very  slight,  as  there  may  be  an  abstract 
giving  the  chain  of  title  to  a  very  recent  date,  which  has  only  to 
be  copied.  Still  there  is  a  responsibility  on  the  part  of  the  attor- 
ney for  its  correctness,  and  theoretically,  at  least,  he  is  supposed 
to  be  liable  for  damages  in  case  he  has  not  properly  performed 
his  duty.  The  writer  knows  of  one  case  in  which  the  attorney  as- 
sumed the  burden  of  a  defect  in  a  case  where  he  was  really  care- 
ful, but  where  a  second  person,  of  the  same  name  as  the  owner, 
had  personated  him.  It  is  proper,  in  the  letter  of  instructions  which 
accompanies  the  check  sent  to  the  attorney  to  complete  the  loan 
not  to  direct  him  to  pay  to  a  certain  person,  but  to  pay  to  the 
owner  of  such  property. 

From  the  amount  of  this  check  the  attorney  deducts  the  ex- 
penses and  charges,  and  pays  over  the  net  proceeds  to  the  bor- 
rower, taking  his  receipt,  of  course,  for  the  full  amount,  and  giving 
him  a  receipt  for  fees.  The  borrower's  receipt  is  endorsed,  as 
already  stated,  on  the  back  of  the  application.  When  a  mortgage 
is  satisfied  or  assigned,  the  necessary  papers  for  that  purpose  are 
drawn  up  by  the  attorney,  and  he  is  responsible  for  their  correct- 
ness, the  officer  signing  whatever  he  advises.  A  payment  on  ac- 
count, not  being  a  matter  of  record,  is  effected  without  the  assist- 
ance of  the  attorney. 

In  case  of  foreclosure,  the  matter  is  placed  entirely  in  the 
hands  of  the  attorney  up  to  the  time  of  the  sale.  When  it 
comes  to  the  amount  to  be  paid,  this  is  a  business  matter  which 
is  decided  by  the  officers  of  'the  bank.  If  bid  in,  it  is  the 
duty  of  the  attorney  to  see  that  the  title  is  perfected  in  the 
bank,  and  the  judgment  is  regularly  entered  for  the  deficiency, 
if  any,  a  transcript  of  which  judgment  should  be  delivered  to  the 
bank.  It  is  also  his  duty,  if  advisable,  to  institute  supplementary 
proceedings  in  order  to  execute  this  judgment.  If  a  purchaser  be 
found  for  the  property  held  by  the  bank,  it  is  the  duty  of  the 
attorney  to  draw  up  a  contract  of  sale,  which  generally  stipulates 
that  the  final  delivery  of  the  deed  shall  be  at  his  office,  and  here, 
again,  he  is  responsible  for  the  correctness  of  the  paper. 

Very  few  cases  occur  in  which  the  bank  requires  the  aid  of  counsel 
in  regard  to  its  money  or  deposits.  Advice  is  sometimes  requisite  as  to 
the  construction  of  the  statute  law,  and  there  is  sometimes  litigation 
arising  from  adverse  claimants  to  moneys  deposited,  or  from  alleged 
errors  on  the  part  of  the  bank.  A  certain  by-law  which  has  been 
adopted  by  most  of  the  Savings  banks,  and  which  has  in  the  main 
been  sustained  as  reasonable  by  our  Court  of  Appeals,  has  been  a 
fruitful  source  of  litigation.  This  by-law  is  usually  to  the  following 
effect — that  the  bank  will  endeavor  to  prevent  fraud,  but  any  pay- 
ment made  to  a  person  producing  the  proper  pass-book  shall  be 


202  PRACTICAL   BANKING. 

valid.  Sometimes  the  expression  is  "will  use  their  best  endeavors," 
and  this  has  been  construed  to  require  a  much  higher  degree  of 
care  than  demanded  by  the  other  phraseology.  What  constitutes  a 
proper  amount  of  diligence  on  the  part  of  the  bank  is  the  turning 
point  of  many  cases,  and  the  question  of  fact  is  usually  submitted 
to  a  jury,  who,  in  the  vast  majority  of  cases,  find  against  the  cor- 
poration. In  the  cases  of  trust  accounts,  of  associate  accounts,  of 
insolvent  depositors,  and  depositors  deceased  or  supposed  to  have 
deceased,  there  are  frequently  adverse  claims,  and  the  bank  is  usually 
secured  by  having  the  amount  nominally  paid  into  court  to  abide  the 
result  of  the  action  between  the  other  parties ;  but  if  paid  over  to 
one  of  the  claimants,  there  is  danger  of  litigation  and  possibility  of 
loss.  This  has  been  the  case  even  where  money  was  paid  over  01. 
genuine  letters  of  administration  granted  upon  the  effects  of  a  per 
son  believed  to  be  dead,  but  who  inopportunely  appeared  and  hat 
to  be  paid  a  second  time. 


STATE  SUPERVISION.  203 


CHAPTER    XII. 
STATE    SUPERVISION   AND    REPORTS. 

In  many,  but  not  all  of  the  States,  officers  are  appointed  for  the 
purpose  of  supervising  and  regulating  Savings  and  other  banks  and 
their  affairs.  In  New  York  State*  no  Savings  bank  can  be  organ- 
ized hereafter  without  the  assent  of  the  Superintendent  of  the  Bank- 
ing Department,  and  there  seems  to  be  no  appeal  from  his  decision. 
During  the  existence  of  the  Savings  bank  it  is  subject  to  his  in- 
spection by  means  of  examinations  and  reports,  as  follows: — 

A  semi-annual  report,  as  already  described  under  the  duties  of 
the  secretary. 

A  special  report  on  any  subject  and  at  any  time  required  by  him. 

An  examination  by  himself  or  by  deputies  once  in  two  years. 

A  special  examination  whenever,  in  his  judgment,  it  shall  be 
necessary. 

The  expenses  of  special  examinations  are  borne  by  the  corpora- 
tion examined.  Those  of  the  regular  examinations  and  other  ex- 
penses of  the  department  are  borne  by  the  corporations  in  propor- 
tion to  their  size,  and,  finally,  the  remedies  in  the  hands  of  the 
Superintendent  in  case  of  improper  action  are,  first,  the  publicity 
effected  through  his  report  to  the  Legislature,  and,  second,  his 
power  to  make  complaint  through  the  Attorney-General  in  case  of 
violation  of  law,  or  improper  exercise  of  corporate  powers ;  and  the 
remedies  which  may  be  applied  by  the  court  upon  this  proceeding 
are :  Removal  of  the  board  of  trustees  or  any  of  their  number ; 
appointment  of  receiver  and  dissolution  of  the  corporation,  or  the 
consolidating  of  the  institution  with  a  similar  one  which  may  be 
willing  to  accept  the  transfer.  .  .  .  The  Superintendent  has  re- 
cently been  given  supervision  over  the  receivers  of  failed  Savings 
banks,  who  are  now  required  to  report  to  him,  and  he  has  been 
made  the  custodian  of  any  unclaimed  balances  which  the  receiver 
may  have  on  hand  in -favor  of  depositors  at  the  termination  of  his 
receivership.  Thus,  during  the  existence  of  a  Savings  bank  the 

*  All  institutions  of  the  kind  within  the  State  are  made  subject  to  its  control,  and  a 
penalty  is  imposed  for  any  person  receiving  or  offering  to  receive  Savings  deposits  in 
any  town  where  there  is  an  organized  Savings  bank. 


204  PRACTICAL    BANKING. 

Superintendent  has  no  positive  governing  power  over  its  acts,  but 
is  the  head  of  a  bureau  of  information.  He  himself  has  no  power 
to  remove  trustees,  or  to  annul  any  of  their  acts,  but  the  moral 
power  given  by  his  authority  for  compelling  information  is  probably 
beneficial. 

The  problem  of  State  supervision  is  a  very  difficult  one.  A 
supervising  department  like  the  one  under  consideration  usually  be- 
comes, after  a  time,  a  mere  bookkeeping  department,  and  if  the 
reports  of  the  several  institutions  check  off  correctly  on  his  sum- 
maries, as  found  by  the  clerks  in  his  department,  the  Superintend- 
ent goes  no  further,  but  devotes  his  time  to  the  more  congenial 
and  dignified  pursuits  of  practical  politics.  This  is  without  any  evil 
consequences  in  peaceful  times,  when  there  is  no  financial  embar- 
rassment, and  everything  goes  swimmingly,  but  usually  the  same 
let-alone  policy  is  continued  from  the  force  of  inertia,  into  a  pe- 
riod when  the  times  begin  to  grow  shaky,  and  generally  the 
superintendent  awakes  to  find  that  his  rose-colored  reports,  for 
some  time  past,  have  been  delusive.  Then  there  will  be  a  reac- 
tion from  King  Log  to  King  Stork,  and  the  state  of  the  most 
prudently  managed  institutions  will  be  looked  upon  with  suspicion, 
and  very  likely  some  unnecessary  wrecks  will  be  the  consequence. 
This  was  the  case  in  the  period  of  financial  reaction,  which  fol- 
lowed our  Civil  War  and  reconstruction  period,  and  presumably  its 
history  will  repeat  itself. 

There  is  one  very  important  lack  in  the  system  of  reports  as 
now  carried  on.  There  is  nothing  corresponding  to  a  profit  and 
loss  account.  There  is  nothing  to  show,  analytically,  whether  the 
dividend  which  has  been  paid  to  depositors  has  been  earned  during 
the  period  covered,  or  whether  it  is  subtracted  from  the  previous 
reserve ;  whether  it  is  strictly  from  the  income,  or  whether  inci- 
dental gains  have  been  relied  upon  to  help  it  out.  Such  an  ac- 
count should  be  required  from  every  Savings  institution,  and  should 
be  most  carefully  scrutinized.  In  doing  so  there  is  a  very  import- 
ant element  which  may  readily  prove  deceptive.  It  is  the  question 
of  premiums  on  stock  investments.  Let  us  suppose  that  the  nor- 
mal rate  of  interest  on  money  is  about  four  per  cent.,  and  that  it 
does  not  vary  much  from  that  figure  on  fair  security,  and  let  us 
suppose  that  a  municipality  has  issued  its  bonds,  bearing  ten  per 
Cftnt.  interest,  and  payable  in  twenty  years.  Let  us  again  suppose 
that  another  municipality  has  issued  its  bonds,  bearing  five  per 
cent,  interest,  and  payable  in  ten  years,  that  another  one  has  issued 
three-per-cent.  bonds,  payable  in  fifteen  years.  We  are  assuming 
that  the  security  in  all  these  cases  is  as  good  as  anything  human 
can  be.  In  case  of  the  ten-per-cent.  bond  running  twenty  years,  it 
is  evident  that  there  is  an  extra  interest  of  about  six  per  cent., 
which  is  to  be  collected  every  year  above  the  market  rate.  There- 


STATE    SUPERVISION.  2O$ 

fore,  the  longer  this  thing  continues  the  more  valuable  is  the  bond, 
and  we  shall  indisputably  find  that  it  bears  a  proportionate  pre- 
mium. The  value  is  not  expressed  by  the  par  $  TOO.  It  is  the 
present  worth  of  $100  due  twenty  years  from  now  -j- the  present 
worth  of  $10  due  one  year  from  now,  +  the  present  worth  of  $10 
due  two  years,  4-  the  same  at  three  years,  -f  etc.,  and  in  order  to 
be  perfectly  accurate  these  present  worths  must  be  computed  at 
compound  interest,  and  this  computation  must  be  semi-annual  or 
annual,  according  to  the  terms  of  the  bond.  The  five-per-cent. 
bond  would  not  be  worth  so  much,  both  because  there  is  a  smaller 
excess  of  interest  over  the  market  rate,  and  because  this  excess  con- 
tinues to  run  for  a  shorter  time.  The  three-per-cent.  bond  would 
be  worth  still  less.  In  this  case  there  is  a  deficiency  of  interest 
which  the  buyer  should  be  compensated  for  now,  and  the  longer 
it  has  to  run  at  three  per  cent,  the  worse  off  is  the  purchaser; 
therefore,  this  bond  would  be  worth  less  than  par.  Now,  it  has 
been  claimed  that  the  true  measure  of  the  surplus  of  a  Savings 
bank,  as  far  as  its  stock  investments  are  concerned,  is  the  nominal 
or  par  value  of  those  investments.  That  is  to  say,  a  bank  having 
seven-per-cent.  bonds  to  a  certain  amount  is  no  better  off  than 
one  having  ^^-per-cent.  bonds.  A  bank  whose  seven-per-cent. 
bonds  mature  next  year  is  no  stronger  than  one  where  the  seven 
per-cent  bonds  have  twenty-five  years  to  run. 

The  advocates  of  this  theory  consider  that  they  are  acting  on  the 
safe  side.  They  consider  the  premium  as  a  loss,  once  for  all ;  there- 
fore, at  a  period  of  buying,  they  would  cut  down  the  dividend  to 
depositors,  perhaps  to  nothing,  simply  because  the  institution  has 
been  making  favorable  investments.  On  the  other  hand,  in  subse- 
quent after  years,  they  would  treat  the  entire  revenue  from  these 
bonds  as  all  profit,  and  thus  the  depositors  at  this  time  would  re- 
ceive more  than  would  be,  on  the  other  theory,  the  fair  earnings  of 
their  money. 

Another  plan  is  to  hold  the  stocks  at  the  amount  they  cost.  By 
this  means  the  loss,  instead  of  being  thrown  upon  the  year  in 
which  they  were  purchased,  is  thrown  into  the  year  during  which 
they  are  sold  or  redeemed,  and  this  is  a  still  more  dangerous  way 
of  looking  at  it.  In  the  former  plan  the  stocks,  if  worth  above 
par,  as  they  usually  are,  are  steadily  undervalued,  while  in  this 
method  they  are  overvalued,  in  all  probability,  during  most  of  the 
time  they  are  held.  In  one  case  there  is  a  fallacious  calculation  of 
current  earnings ;  in  the  other  case,  there  is  a  fallacious  estimate  of 
surplus  in  reserve.  The  true  principle  would  seem  to  be  that  each 
year  or  half  year  an  equitable  portion  of  the  amount  paid  for  pre- 
miums, or  conversely,  of  the  amount  received  for  discount,  should 
be  wiped  out,  so  that  the  differences  between  par  and  market  value 
would  steadily  and  gradually  disappear  as  the  bond  approached  its 


206  PRACTICAL    BANKING. 

maturity.  Thus,  the  ten-per-cent.  bond  of  which  we  spoke  would 
be  considered  as  earning,  each  year,  the  rate  to  which  its  cost  price 
would  be  equivalent  when  averaged  over  the  term — say  four  and 
a-half  per  cent.  The  remaining  five  and  a-half  per  cent,  should  not 
be  considered  as  earnings,  but  as  an  offset  to  the  depreciation  of 
bond,  or  a  refunding  to  us  of  extra  premium,  which  we  paid  for  an 
abnormally  high  rate  of  interest,  and  while  this  is  true  in  theory 
it  can  be  empirically  tested  by  the  state  of  the  market.  It  will  be 
found  that,  making  allowance  for  the  shifting  productiveness  of 
money  and  some  other  disturbing  element,  such  as  public  confi- 
dence, that  the  market  price  of  a  security  will  settle  in  about  this 
manner :  That  each  year  there  will  be  a  depreciation,  amounting 
approximately  to  the  difference  between  the  current  rate  of  interest 
on  that  kind  of  securities  and  the  revenue  actually  produced.  We 
would  therefore  enunciate  this  formula  for  ascertaining  the  true 
earnings  from  stock  investments.  From  the,  cash  income  (#)  re- 
ceived subtract  such  part  (£)  of  the  premium,  as  will  progressively 
consume  the  entire  premium  at  the  date  of  maturity.  The  differ- 
ence is  the  current  earnings  (V). 

Again,  take  the  difference  between  the  market  value  (d}  at  the 
beginning  of  the  period,  and  the  market  value  (e)  at  the  close  of 
the  period.  The  difference  between  d  and  e  is  the  gross  deprecia- 
tion (/),  or  the  gross  appreciation  (  — /). 

Combining  b,  taken  negatively,  with  /,  or  — /,  we  have  the  inci- 
dental or  speculative  loss  or  gain  (p,  or  — /). 

P=+f-b. 
-p^-f-b. 

Thus  there  will  be  four  cases. 

First. — A  gross  depreciation  equal  to  the  amount  of  premium 
written  off.  Here  there  is  no  loss  nor  gain. 

Second. — A  depreciation  greater  than  the  amount  of  premium 
written  off.  Here  there  is  an  incidental  loss  to  be  taken  from  the 
surplus. 

Third. — A  gross  depreciation  less  than  the  amount  of  premium 
written  off.  In  this  case  there  is  an  incidental  gain  or  a  real  ap- 
preciation. 

Fourth. — An  appreciation  which,  together  with  the  premium  writ- 
ten off,  is  always  an  incidental  gain. 


Our  examination  of  the  functions  of  a  Savings  bank  brings  us  to 
the  conclusion  that  it  is  simply  a  money  making  corporation — an 
association  of  small  capitalists  who  combine  for  the  purpose  of  hav- 
ing their  small  investments  possess  an  earning  power  by  aggrega- 
tion. The  officers  and  employees  of  the  Savings  bank  are  merely 


CONCLUSION.  207 

their  agents  in  this.  The  entire  resources  of  the  bank,  whether 
credited  to  deposits  or  to  surplus,  are  the  absolute  property  of  de- 
positors as  an  association.  The  trustees  are  a  body  whose  constitu- 
tion is  somewhat  anomalous,  being  the  unpaid  custodians  of  money 
not  their  own,  but  whose  duties  are  assumed  as  a  public  burden 
and  as  a  distinction.  This  latter  peculiarity,  the  constitution  of  a 
board  of  trustees,  which  is  independent  of  the  real  proprietors  of 
the  concern,  seems  to  me  the  only  point  which  gives  a  Savings 
bank,  as  now  organized,  a  right  to  be  called  a  benevolent  institu- 
tion. It  is  benevolent  for  the  trustees  to  give  their  time  and  ser- 
vices without  compensation  in  the  management  of  the  money  of 
others.  It  is  not  benevolence,  however,  to  invest  a  man's  money 
and  pay  him  over  the  proceeds.  Although  in  practice,  this  plan 
of  organization  has  worked  better  than  the  one  where  there  is  a 
body  of  stockholders  whose  capital  is  substituted  for  a  surplus  as 
guaranteed  to  depositors,  yet  it  is  by  no  means  proved  that  the 
advantage  would  not  be  on  the  side  of  the  latter  form,  which 
eliminates  all  pretence  of  benevolence,  and  makes  the  Savings 
bank  what  we  believe  it  to  be,  a  pure  matter  of  business.  Of  the 
three  forms  of  associated  saving,  viz.,  the  mutual,  which  we  have 
described  at  length,  the  stock,  or  business-like  form,  which  we  have 
just  touched  upon,  and  the  governmental,  which,  of  late  years,  is 
becoming  the  subject  of  experiment,  time  alone  can  decide  which 
will  survive  as  the  fittest. 


208  PRACTICAL  BANKING, 


CHAPTER  XIII. 
HOW   nTFESTMENTS    SHOULD    BE   MADE. 

We  shall  close  this  part  of  our  work  by  giving  some  rules  re- 
lating to  Savings  banks'  investments.  The  Legislatures  of  the  sev- 
eral States  have  adopted  regulations  on  this  subject,  thus  lightening 
the  responsibility  of  Savings  bank  directors.  These  regulations  are 
the  outcome  of  a  conservative  spirit,  and  should  be  observed. 
Nevertheless,  a  wide  latitude  exists,  which  cannot  be  completely 
traversed  by  Legislative  regulation.  To  a  very  important  degree  the 
directors  must  exercise  their  own  wisdom  in  making  investments. 
The  following  remarks  on  this  subject  were  made  by  Mr.  Washing- 
ton B.  Williams  at  the  annual  meeting  of  the  American  Bankers'  As- 
sociation in  1882.  They  are  worthy  the  attentive  study  of  those 
who  are  entrusted  with  the  duty  of  investing  the  funds  of  these 
institutions. 

Safety  is  the  first  consideration,  and  profit  is  secondary.  Again, 
Savings  banks  are  not  confined  to  investments  which  are  readily 
convertible.  Here,  also,  safety  comes  first;  convertibility  is  of  minor 
importance. 

Mortgages  on  real  estate,  being  less  readily  convertible  than  some 
other  securities,  bear  higher  interest.  At  the  same  time,  no  prop- 
erty is  more  stable  in  value,  and  none  less  likely  to  depreciate, 
than  real  estate.  Neither  the  recent  general  depression  from  former 
inflated  values,  nor  any  special  instances  of  loss,  affect  the  truth  of 
this  general  proposition. 

Mortgages  on  real  estate,  accordingly,  have  always  been  a  favor- 
ite kind  of  investment  for  Savings  banks.  They  have  other  advan- 
tages, in  not  being  readily  subject  to  theft  or  misappropriation ;  and 
the  laws  of  the  several  States,  as  well  as  the  general  rules  by 
which  courts  govern  and  control  trustees,  declare  this  mode  of  in- 
vestment to  be  the  most  desirable. 

Taxes  are  high  in  this  country,  are  thrown  heavily  on  real  es- 
tate, and  are  generally  paramount  to  mortgages.  To  secure  prompt 
payment  of  interest  and  taxes,  the  property  mortgaged  ought  gen- 
erally to  be  improved  and  productive  of  rent. 

The  Savings  bank  law  of  New  York  allows  the  investment  of  not 
over  60  per  cent,  of  the  deposits  in  such  mortgages.  That  of  New 


HOW    INVESTMENTS    SHOULD    BE    MADE.  209 

Jersey  allows  70  per  cent.,  and  these  serve  to  indicate  the  general 
rule. 

By  examining  the  reports  as  to  the  Savings  banks  of  the  several 
States  it  will,  however,  be  found  that  the  Savings  banks  of  New 
England  invest  not  over  35  per  cent,  of  their  trust  funds  in  mort- 
gages, and  those  of  New  York  City  a  less  proportion. 

The  best  conducted  Savings  bank  in  Jersey  City,  N.  J.,  which  has 
passed  safely  all  the  depressions  and  panics  of  thirty  years,  has 
generally  maintained,  and  still  maintains,  its  mortgage  investments 
at  over  65  per  cent.,  of  a  deposit  line  of  over  $  5,000,000. 

These  different  usages,  though  they  doubtless  result  from  more 
than  one  cause,  yet  point  with  sufficient  clearness  to  this  important 
rule:  Taxation  should  be  so  adjusted  as  in  no  wise  to  deter 
Savings  banks  from  freely  investing  on  mortgages  on  real  estate. 
It  is  a  most  unwise  policy  as  to  the  interests  of  the  industrial 
classes  to  drive  Savings  banks  out  of  this  mode  of  investment.  It 
is  the  mode  which  is  at  once  solid  in  basis,  understood  by  and  ac- 
ceptable to  the  depositors,  and  beneficial  to  them  and  the  commu- 
nity where  the  savings  arise,  by  re-distributing  the  savings  in  the 
form  of  loans.  Such  investments  ought  not  to  be  taxed,  even  if  it 
should  become  necessary  to  accord  a  special  preference  in  this  re- 
spect to  Savings  banks.  These  institutions  represent  the  industry 
and  frugality  of  the  masses,  and  every  effort  should  be  made  to  put 
them  on  the  soundest  footing.  In  my  belief,  nothing  can  so  surely 
do  this,  and  so  certainly  retain  confidence,  as  to  encourage,  facilitate 
and  require  the  investment  of  the  savings  deposits  in  mortgages 
properly  secured  on  the  farms,  the  shops,  and  the  homes  of  the 
people.  If  these  are  not  real  values,  what  are?  How  can  mere 
promises  to  pay  by  the  same  people,  either  individually  or  collect- 
ively, be  any  better? 

It  is,  then,  to  be  regarded  as  a  prime  duty  of  legislators  to  so 
regulate  taxation  as  to  encourage,  not  deter,  investments  by  Sav- 
ings banks  in  loans  on  real  estate. 

A  trustee  should  take  no  risks  that  can  be  avoided.  If  he  acts 
on  this  rule,  he  is  discharging  his  full  duty.  If  he  violates  it, 
although  from  good  motives,  if  he  allows  his  confidence  in  his  own 
skill  in  choosing  among  the  many  ordinary  investments  in  the 
market  to  lead  him  to  transcend  it,  he  would  be  restrained  by 
injunction  by  any  court  having  jurisdiction  of  trusts,  even  if  the 
particular  investment  were  a  successful  one.  High  rates  of  interest 
are  quite  a  secondary  matter. 

In  order  to  avoid,  then,  as  far  as  possible,  all  temptation  to  do 
more  than  one's  duty,  as  trustee,  or  to  manifest  special  financial 
skill,  or  to  make  the  earning  of  interest  paramount  to  absolute 
safety,  we  would  adopt  certain  rules. 

Large  deposits,  which  do   not  come  from   savings,  but   which  are 


210  PRACTICAL    BANKING. 

the  capital  of  persons  who  have  acquired  wealth,  should  be  rejected. 
They  can  invest  their  own  funds,  and  they  are  likely  to  withdraw 
their  deposits  suddenly  and  in  large  sums. 

Bonuses  and  discounts  on  buying  securities  should  not  be  sought 
or  allowed.  They  tend  to  drive  .away  the  best-secured  loans,  and 
to  introduce  a  speculative  habit  of  looking  at  the  immediate  appar- 
ent gain  rather  than  the  ultimate  security. 

Good  mortgages  on  improved  real  estate,  to  about  half  its  value, 
should  be  encouraged  and  granted  up  to  the  highest  legal  limit, 
without  fear.  If  necessary,  the  rate  of  interest  on  these  should  be 
reduced,  so  as  to  secure  the  very  best  of  that  class  of  investments. 

Would  this  be  safe   in   case  of    a  run   on  the  bank? 

It  would   for  several  reasons : 

First. — The  remaining  35  per  cent,  and  upwards  of  convertible  se- 
curities would  be  available. 

Second. — Such  mortgages,  though  not  promptly  available  at  par,  are 
always  excellent  securities  to  borrow  on  temporarily  to  meet  such 
emergencies. 

Third. — The  mortgage-investments  being  to  a  large  extent  loans 
among  the  same  community  which  affords  the  depositors,  there  is  a 
powerful  influence  at  work  to  sustain  confidence  in  the  assets  of 
the  bank. 

But,  as  a  further  means  of  safety  to  all,  the  bank  should  never 
hesitate,  in  case  of  panic,  to  enforce  its  thirty,  sixty  or  ninety  day 
rule,  as  the  case  may  be,  or  to  close  its  doors.  It  is  nothing  but 
the  common  agent  or  trustee  of  the  depositors,  who,  as  above 
shown,  have  a  common  interest  in  its  funds  and  investments.  It 
has  no  financial  reputation  to  keep  up  as  a  source  of  profit  to 
itself  or  to  attract  deposits.  Its  whole  duty  is  summed  up  in  the 
one  word  "safety." 

A  trustee  has  neither  moral  nor  legal  right  to  sacrifice  a  part  of 
the  common  assets  in  order  to  give  an  advantage  to  those  of  the 
common  proprietors  who  first  run  to  his  door.  A  court  having 
jurisdiction  of  trusts  would  restrain  him  by  injunction  from  thus 
violating  his  prime  duty  of  taking  care  of  the  common  property 
for  the  common  benefit.  Some  special  charters  of  Savings  banks 
expressly  provide  for  such  action.  I  think  the  power  and  duty  of 
the  courts  plainly  arises  out  of  the  nature  of  the  trust.  But  to 
avoid  all  question  it  should  be  provided  for  by  proper  legislation 
wherever  this  ordinary  class  of  Savings  banks  exists. 

The  salutary  effect  of  such  judicial  action  is  at  once  apparent. 
The  bank  stands  in  this  emergency  like  any  other  trustee  who  seeks 
the  direction  and  protection  of  the  courts. 

They  will  stop  any  ill-advised  suits,  hold  back  every  hostile  hand, 
and  open  the  doors  again  and  direct  payment  by  installments  if 
prudence  so  indicates.  This  is  the  best  and  safest  way  for  real 


HOW  INVESTMENTS   SHOULD   BE   MADE.  211 

savings  depositors,  and  meets  all  their  actual  needs  in  the  supposed 
case  of  a  panic.  In  the  meantime,  the  assets  are  producing  their 
regular  income,  there  are  no  sacrifices  of  securities,  the  ignorant  and 
alarmed  depositors  are  protected  against  loss,  and  none  gets  an  ad- 
vantage over  the  other,  and  the  bank  finally  resumes  without 
injury. 

Too  much  unwillingness  to  adopt  this  safe  and  just  course,  if  it 
becomes  necessary,  would  savor  of  a  desire  to  do  more  than  the 
duty  of  a  trustee ;  a  course  neither  incumbent,  nor,  indeed,  justifiable. 

As  a  corollary  to  this  view,  would  come  the  rule  of  giving  all 
due  publicity  to  the  affairs  and  investments  of  the  bank,  at  least 
as  to  its  class  and  kind  of  investments  and  their  amounts.  Inquiry 
was  recently  made  of  a  Savings  bank  in  the  City  of  New  York 
for  a  statement  of  this  character,  such  as  is  made  public  in  many 
banks,  and  is  required  by  law  once  or  twice  a  year  in  some  States. 
The  answer  given  was,  that  that  bank  made  no  such  statements, 
and  that  the  names  of  its  trustees  were  sufficient  guarantees  to  the 
public  of  its  soundness  and  good  management.  I  need  not  say 
that  such  views  are  contrary  to  the  true  position  and  office  of  a 
Savings  Bank. 

Investments  in  expensive  buildings  should  be  avoided.  In  many 
cases,  the  whole  apparent  surplus  will  be  found  to  be  absorbed  in 
an  unproductive  banking-house. 

Government  bonds  are  the  safest  of  convertible  investments,  and 
so  are  generally  the  bonds  of  the  State  in  which  the  bank  is  situ- 
ated. They  may  be  'guarded  against  the  ordinary  chances  of  fire 
and  theft  by  well  known  precautions,  such  as  registry,  stamping,  &c., 
but  the  low  rate  of  interest  which  they  must  henceforth  produce 
renders  it  very  desirable  to  see  if  the  field  can  be  extended  with- 
out losing  sight  of  our  cardinal  rules. 

It  must  be  conceded  that  personal  security  of  two  or  more  names 
is  not  admissible,  notwithstanding  the  custom  of  many  New  Eng- 
land Savings  banks  to  accept  such  security.  Not  only  is  this  usage 
entirely  opposed  to  the  general  law  of  trusts  as  established  by  the 
experience  of  two  centuries,  but  it  leads  to  complications  and  temp- 
tations outside  of  the  line  of  duty  which  directors  of  a  Savings 
bank  ought  to  confine  themselves  to. 

Stocks  of  railway  and  manufacturing  corporations  must  also  be 
excluded.  In  fact,  railway  management,  as  to  treatment  of  stock- 
holders and  value  of  stock,  is  now  almost  synonymous  with  decep- 
tion and  fraud.  If  there  are  exceptions,  they  serve  to  establish  the 
general  rule. 

As  to  other  corporations,  the  value  of  their  stock  depends  so 
much  on  the  changing  market,  on  the  course  of  mechanical  inven- 
tion, on  the  individual  qualities  of  the  managers,  that  it  is  too  un- 
stable for  our  present  purpose. 


212  PRACTICAL    BANKING. 

Railway  bonds,  secured  by  first  mortgage  on  the  entire  road,- 
would  seem  a  safe  class  of  investment  with  the  exercise  of  ordi- 
nary prudence,  and  at  one  time  were  largely  taken  by  some  Savings 
banks.  So  vast  and  so  constantly  increasing  are  these  great  internal 
improvements,  so  enormous  the  flow  and  reflow  of  business  over 
them,  so  immense  the  probable  development  of  that  business  in  the 
future,  that  such  mortgages,  if  they  could  be  had  at  a  proper  rate 
per  mile,  would  be  among  the  safest  of  investments,  assuming  rea- 
sonable care  in  selecting  those  of  apparently  permanent  value. 
There  is  difficulty  in  ascertaining  the  history,  legal  position  and 
amount  of  such  mortgages,  but  not  so  great  as  to  be  insurmount- 
able. The  great  objection  is  to  the  extravagant  amount  per  mile  of 
the  bonds  issued  in  many  cases,  compelling  after  a  while  the  bond- 
holders to  take  the  road  It  is  always  an  undesirable  thing  for  a 
trustee  to  be  compelled  to  enter  into  a  current  business  with  the 
trust  funds. 

Municipal  indebtedness  has  attained  large  proportions  in  this 
country,  and  has  long  furnished  a  field  for  private  and  corporate 
investment.  Experience  has  fully  shown  that  we  must  strike  out 
from  the  list  of  Savings  bank  investments  all  municipal  bonds  is- 
sued in  aid  of  any  railway  undertaking.  The  Legislatures  of  several 
States  have  recognized  this,  and  after  once  allowing  such  invest- 
ments by  Savings  banks  have  very  judiciously  forbidden  them. 

Subject  to  this  exception,  the  public  debt  of  local  municipalities 
within  the  State  where  the  Savings  bank  is  located,  is  a  sound 
class  of  investment,  assuming,  of  course,  the  exercise  of  due  care 
in  the  investigation  of  the  origin  and  aggregate  amount  of  such 
debt.  You  have  the  savings  of  many  voters  in  your  care.  If  in- 
vested in  apparently  sound  municipal  obligations,  there  is,  besides 
legal  remedies,  a  great  force  of  public  opinion  to  sustain  your  claim, 
and  to  bring  about  proper  provision  for  payment  of  interest 
and  principal.  Experience  shows  that  such  debts,  when  not  dispro- 
portionately large,  or  the  result  of  some  arbitrary  and  unpopular 
scheme,  have  been  among  the  safest  investments  we  have  had. 

It  is  evident  that  we  must  look  elsewhere  than  to  Government 
bonds  alone  for  interest  paying  securities.  The  directions  to  look 
in  are  (i)  mortgages  on  productive  real  estate  to  a  high  percentage 
of  the  total  investments ;  (2)  well  selected  municipal  obligations ; 
(3)  selected  railway  first  mortgages. 

Those  to  avoid  are  (i)  real  estate  of  merely  speculative  value, 
and  unimproved ;  (2)  capital  stock  of  railways  or  manufacturing  cor- 
porations ;  (3)  personal  security ;  (4)  railway  aid  bonds,  and  muni- 
cipal bonds  where  the  debt  is  large  in  proportion  to  the  resources, 
or  is  the  result  of  too  sanguine  speculation  on  the  future. 

Call-loans  on  deposit  of  collaterals  form  a  large  part  of  the 
business  of  some  city  Savings  banks.  No  doubt,  in  a  large  com- 


HOW   INVESTMENTS   SHOULD   BE  MADE.  2IJ 

mercial  center,  these  may  be  safely  and  quickly  made.  The  objec- 
tion to  them  is  that  they  tend  to  throw  the  whole  management 
and  selection  of  investments  into  the  hands  of  some  one  person. 
However  efficient  such  management  may  be  for  a  time,  we  know 
that  most  great  disasters  have  also  arisen  from  this.  Other  invest- 
ments, such  as  mortgage  loans,  or  the  purchase  of  securities,  are 
usually,  in  well-managed  banks,  passed  upon  by  a  board  or  com- 
mittee. This  old-fogy  method  is  the  safest,  and  so  far  as  practica- 
ble should  be  followed  by  institutions  whose  paramount  object  is 
safety.* 

Some  New  England  and  other  Savings  banks  have  loaned  funds 
on  mortgage  on  lands  in  other  States.  There  is  no  reason  why 
such  loans  on  suitable  and  proper  security  should  not  be  as  good 
and  safe  in  Massachusetts  as  in  New  York ;  but  there  is  a  great 
difficulty  in  being  assured  that  you  are  getting  proper  security.  At 
home  your  own  board  or  your  own  investment  committee  can 
judge,  depositors  are  more  or  less  familiar  with  your  securities,  the 
risk  of  acting  on  other  men's  judgment,  removed  from  your  own 
responsibility,  is  avoided,  your  risk  is  less,  your  certainty  of  protec- 
tion by  the  courts  is  greater.  Prudence  dictates  that  even  in  these 
days  of  easy  locomotion  and  of  assimilating  business  and  values, 
you  should  not  extend  your  reach  too  far  and  get  beyond  the 
range  of  your  own  vision  and  your  own  capacity  to  judge  and  act. 
It  may  be  the  office  of  a  good  judge  to  enlarge  his  jurisdiction,  but 
it  is  not  the  duty  of  a  prudent  trustee. 

The  same  reasons  will  apply  to  distant  municipal  and  railway  se- 
curities. And  caution  should  be  exercised  in  going  beyond  your 
own  State  as  to  any  debt  of  local  municipalities.  My  own  view  is 
that  this  should  be  prohibited,  except,  perhaps,  in  certain  cases, 
such  as  well-known  large  cities  whose  affairs  are  conducted  on  a 
sound  basis,  and  with  the  advantage  of  the  best  business  talent. 
This  is  true  of  Boston,  New  York,  Philadelphia  and  others,  and  is 
not  affected  by  the  fact  that  they  have  also  been  now  and  then 
attacked  by  municipal  thieves. 

*  A  startling  instance  of  the  danger  of  this  call-loan  method  has  recently  occurred  in  the 
Newark  Savings  Institution  now  insolvent. 


PART    III. 
CLEARING- HOUSES 


THE  CLEARING-HOUSE.  217 


CHAPTER  I. 
ORIGIN    AND    UTILITY    OP    THE    CLEARING-HOUSE. 

Closely  connected  with  the  general  subject  of  banking  is  that  of 
the  Clearing-house.  This  is  a  comparatively  modern  institution,  the  "' 
Edinburgh  bankers  claiming  the  credit  of  establishing  the  first  one. 
The  earliest  of  whose  transactions  we  have  any  record,  however, 
is  that  of  London,  founded  in  1775,  or  earlier,  and  of  this  little 
was  known  to  the  public  until  it  began  to  publish  regular  state- 
ments of  its  transactions,  May  ist,  1867.  The  literature  on  the  sub- 
ject is  almost  wholly  the  creation  of  the  last  thirty  years.  Works 
on  banking  and  political  economy,  of  an  earlier  date  than  this, 
rarely,  if  ever,  notice  the  subject  at  all.  For  more  than  three 
quarters  of  a  century  after  its  establishment  the  London  Clearing- 
house and  that  of  Edinburgh  remained  the  only  organizations  of 
the  kind  known  to  exist.  The  monetary  systems  of  most  European 
States,  centering  around  a  single  great  bank,  located  at  the  capital 
of  each,  found  in  this  a  means  of  effecting  mercantile  settlements. 
Furthermore,  the  use  of  bank  checks  in  making  payments,  which 
chiefly  creates  the  need  of  the  bankers'  Clearing-house,  has  in  re- 
cent years  attained  a  development  previously  unknown.  The  growth  | 
of  American  banking,  decentralized  and  distributed  among  many 
banks,  and  the  increasing  use  of  bank  checks  as  a  means  of  pay- 
ment, gave  birth  to  the  next  Clearing-house  in  the  order  of  time 
after  that  of  London.  The  New  York  Clearing-house  was  estab- 
lished in  1853,  from  which  date  the  growth  of  the  Clearing-house 
system  in  the  United  States  has  been  stupendous.  Boston  followed 
in  1856;  Philadelphia,  Baltimore  and  Cleveland  in  1858;  Worcester 
in  1 86 1 ;  Chicago  in  1865,  all  the  others  are  of  later  date.  At  pres- 
ent there  are  thirty-one  Clearing-houses  known  to  exist  in  this 
country.  Each  of  our  prominent  commercial  cities  has  one.  The 
United  Kingdom  has  six,  Australia  one,  and  they  are  found  in 
France,  Germany,  Switzerland  and  Italy,  though  checks  are  so  little 
used  on  the  Continent  of  Europe  that  the  Clearing-houses  of  the  ( 
last  four  countries  have  comparatively  small  transactions.  The  ex- 
changes of  American  Clearing-houses  were  $51,827,000,000,  in  1883, 
and  in  1881  reached  a  maximum  of  $63,414,000,000,  adjusted  by  the 
payment  of  balances  not  exceeding  six  per  cent,  of  the  amount 


2l8  PRACTICAL   BANKING. 

cleared,  the  actual  cash  handled  being  estimated  at  about  two  per 
cent,  of  the  clearings.  From  the  inauguration  of  the  Clearing-house 
system  in  1853  to  December  31,  1883,  it  had  effected  settlements 
amounting  to  about  $880,000,000,000,  by  paying  balances  of  about 
$57,000,000,  or  6^  per  cent,  of  the  clearings.  The  amount  of  actual 
cash  handled  was  very  much  less  than  this,  as  balances  are  to  a  great 
extent  paid  by  means  of  checks  or  certificates  issued  from  some 
common  depository,  without  handling  actual  cash.  The  Clearing- 
house is,  therefore,  one  of  the  most  useful  agencies  called  into  be- 
ing by  the  wants  of  modern  commerce.  It  is  among  the  most 
interesting  features  of  our  financial  mechanism  and  well  worthy  of 
careful  study.  Susceptible  of  almost  indefinite  expansion,  the  clear- 
ing system  in  its  various  forms  holds  in  possibility  the  solution 
of  problems  which  have  long  engaged  the  attention  of  thinkers. 

A  glance  at  some  of  the  more  common  banking  operations  will 
suffice  to  show  the  need  of  a  Clearing-house  wherever  any  con- 
siderable number  of  banks  are  located  in  the  same  vicinity.  Mer- 
cantile establishments  are  constantly  receiving  in  the  course  of 
business  not  only  specie,  but  usually,  to  a  much  larger  extent, 
bank  notes,  checks,  drafts,  or  other  mercantile  paper.  To  present 
this  paper  at  the  counters  of  the  various  banks  at  which  it  is 
payable  would  take  a  great  deal  of  time.  The  dealer,  therefore, 
deposits  it  in  the  bank  with  which  he  keeps  his  account,  where, 
either  at  once,  or  at  latest  when  collected,  the  amount  is  placed 
to  his  credit  and  goes  to  swell  his  balance.  This  is  the  usual  way 
in  which  a  bank  receives  the  paper  payable  at  other  banks.  It 
may  also  be  taken  in  payment  of  notes  payable  at  the  bank  re- 
ceiving it.  Although  bank  notes,  as  well  as  the  various  kinds  of 
mercantile  paper,  are  so  received,  yet  the  great  bulk  of  all  such 
receipts,  especially  in  the  large  cities,  consists  of  checks.  When 
the  paper  in  question  is  payable  at  the  bank  receiving  it,  the  trans- 
action is  closed  by  the  simple  delivery  in  the  case  of  bank  notes, 
and  in  the  case  of  checks  by  charging  them  to  the  drawer,  the 
result  being,  in  the  latter  case,  a  simple  transfer  on  the  books  of 
the  bank  from  the  account  of  the  drawer  to  that  of  the  drawee. 
Where  most  of  the  transactions  of  a  community  center  in  a  single 
institution,  as  formerly  in  the  case  of  the  Bank  of  England,  and  at 
present  in  the  case  of  the  Bank  of  France,  the  larger  part  of  the 
check  transactions  may  be  settled  in  this  way.  Thus  at  Paris 
where  the  Bank  of  France  performs  the  functions  of  a  great  Clear- 
ing-house, its  clearings  or  transfers  reached  $6,008,243,900  in  1883, 
as  compared  with  $813,238,000  at  the  Paris  Clearing-house.  In 
1881,  the  clearings  of  the  Bank  of  France  reached  $8,772,000,000, 
while  those  of  the  Paris  Clearing-house  were  only  $908,600,000,  the 
former  being  nine  and  three-fourths  times  the  latter.  To  make 
provision  for  this  class  of  business,  the  Bank  of  France  furnishes 


THE  CLEARING-HOUSE.  219 

special  books  of  red  colored  checks — so-called,  "  bons  de  virement 
rouge" — the  object  of  which  is  to  enable  payments  to  be  made 
by  their  means  to  other  persons  also  having  an  account  at  the 
bank  without  its  being  possible  for  any  one  unlawfully  to  obtain 
value  for  them,  since  they  only  operate  as  orders  to  the  bank  to 
transfer  such  an  amount  from  the  drawer's  account  to  some  other 
account  on  the  books  of  the  bank,  and  never  as  vouchers  for  the 
withdrawal  of  funds  from  the  establishment.  The  Bank  of  Eng- 
land furnishes  no  account  of  its  clearing  transactions,  but  they 
must  be  a  much  smaller  proportion  of  the  total  than  those  of 
the  Bank  of  France,  banking  being  less  centralized  in  London 
than  in  Paris. 

In  this  country  no  one  bank  concentrates  in  itself  the  larger  por- 
tion of  the  business.  Free  banking  and  competition  keep  the 
banks  more  nearly  on  an  equality.  The  larger  part  of  the  checks 
received  by  any  bank,  in  the  course  of  business,  are  likely  to  be 
drawn  on  some  other  bank,  of  which  they  must  be  collected  by 
the  receiving  bank.  As  business  increases  in  any  locality,  each  bank 
is  likely  to  have  a  larger  number  and  amount  of  demands  upon, 
most  of  the  other  banks  in  the  place,  and  they  eventually  become 
too  large  and  numerous  to  be  conveniently  settled  between  the  in- 
dividual banks.  Before  the  establishment  of  a  Clearing-house  in 
this  country  this  method  was  pursued  in  New  York  long  after  the 
inconvenience  became  so  great  that  it  would  now  be  considered 
quite  intolerable.  Mr.  J.  S.  Gibbons,  in  his  very  interesting  and  in- 
structive book,  The  Banks  of  New  York  and  the  Panic  of  1857, 
gives  the  following  graphic  description  of  the  difficulties  attending 
this  mode  of  settlement : 

"During  the  few  years  following  1849  the  number  of  banks  in 
New  York  was  increased  from  twenty-four  to  sixty.  To  make  the 
daily  exchange,  one  half  of  them  must  necessarily  send  to  the  other 
half.  But  this  plain  division  of  the  service  was  not  convenient  or 
economical.  It  was  found  better  for  all  of  them  to  do  a  part  of 
the  distribution,  and  thus  the  whole  sixty  porters  were  in  motion  at 
the  same  time.  Each  carried  a  book  of  entry,  and  the  money  for 
every  bank  on  which  he  called.  The  paying  teller  of  the  receiving 
bank  took  the  exchange  and  entered  it  on  the  credit  side  of  the 
book ;  then  he  entered  on  the  debit  side  the  return  exchange  and 
gave  it  with  the  book  to  the  porter,  who  hastened  to  the  next 
bank  in  his  circuit.  The  porters  crossed  and  recrossed  each  other's 
footsteps  constantly;  they  often  met  in  companies  of  five  or  six  at 
the  same  counter,  and  retarded  each  other,  and  they  were  fortunate 
to  reach  their  respective  banks  at  the  end  of  one  or  two  hours. 
This  threw  the  counting  of  the  exchanges  into  the  middle  and 
after  part  of  the  day,  when  the  other  business  of  the  bank  was  be- 
coming urgent. 


220  PRACTICAL   BANKING. 

"  Instead  of  attempting  a  daily  adjustment  of  accounts,  which 
would  have  consumed  several  hours  and  caused  much  annoyance, 
it  became  a  tacit  agreement  that  a  weekly  settlement  of  balances 
should  be  made  after  the  exchange  of  Friday  morning,  and  that 
intermediate  draft  drawing  should  be  suspended.  The  weaker  and 
more  speculative  banks  took  advantage  of  this  by  borrowing  money 
on  Thursday,  which  restored  their  accounts  for  Friday,  and  its  re- 
turn on  Saturday  threw  them  again  into  the  debit  column.  In  this 
way  the  banks  distant  from  Wall  Street  managed  to  carry  an  in- 
flated line  of  discounts,  based  on  debts  due  to  other  institutions. 
It  became  an  affair  of  cunning  management  by  some  to  run  a  small 
credit  of  two  or  three  thousand  dollars  each  with  thirty  or  more 
banks,  making  a  total  of  one  hundred  thousand  dollars,  on  which 
they  discounted  bills.  Consequently,  the  Friday  settlements  proved 
to  be  no  settlements  at  all,  but  a  prodigious  annoyance.  As  soon 
as  the  paying  teller  or  his  assistant  completed  the  exchange  balance 
list  the  cashier  of  each  bank  would  draw  checks  for  every  debt 
due  to  him  by  other  banks,  and  send  out  the  porters  to  collect 
them.  A  draft  on  one  in  favor  of  another  might  settle  two  ac- 
counts at  once,  but  there  was  no  understanding  that  made  it  possible 
to  secure  that  small  economy;  or,  if  there  was,  it  was  disregarded. 
The  sixty  porters  were  out  all  at  once,  with  an  aggregate  of  two 
or  three  hundred  bank  drafts  in  their  pockets,  balking  each  other, 
drawing  specie  at  some  places  and  depositing  it  in  others,  and  the 
whole  process  was  one  of  confusion,  disputes,  and  unavoidable 
blunders,  of  which  no  description  could  give  an  exact  impression. 

"After  all  the  draft-drawing  was  over  came  the  settlement  of 
the  Wall  Street  porters  among  themselves.  A  Porters'  Exchange  was 
held  on  the  steps  of  one  of  the  Wall  Street  banks,  at  which  they 
accounted  to  each  other  for  what  had  been  done  during  the  day. 
Thomas  had  left  a  bag  of  specie  at  John's  bank  to  settle  a  balance 
which  was  due  from  William's  bank  to  Robert's ;  but  Robert's  bank 
owed  twice  as  much  to  John's.  What  had  become  of  that?  Then 
Alexander  owed  Robert  also,  and  William  was  indebted  to  Alex- 
ander. Peter  then  said  that  he  had  paid  Robert  by  a  draft  from 
James,  which  he,  James,  had  received  from  Alfred  on  Alexander's 
account.  That,  however,  had  settled  only  half  the  debt.  A  quarter 
of  the  remainder  was  canceled  by  a  bag  of  coin  which  Samuel  had 
handed  over  to  Joseph,  and  he  had  transferred  to  David.  It  is  en- 
tirely safe  to  say  that  the  presidents  and  cashiers  of  the  banks 
themselves  could  not  have  untangled  this  medley.  Each  porter 
had  his  tally,  and  by  checking  off  and  liberating  first  one,  whose 
account  was  least  complicated,  and  then  another,  they  finally 
achieved  a  settlement. 

"This  scene  was  re-enacted  on  every  Friday.  In  consequence  of 
the  porters  being  withdrawn  from  their  regular  service  in  the  bank. 


THE  CLEARING-HOUSE.  221 

extra  labor  was  imposed  on  others,  responsibilities  became  mingled 
together,  and  the  officers  were  kept  for  the  whole  day  in  a  state  of 
distraction  and  anxiety.  The  paying  tellers  were  subject  to  frequent 
interruption,  as  they  were  obliged  to  receive  and  deliver  all  specie. 

"  Not  the  least  irritating  feature  of  the  case  was  that  a  single  small 
draft  by  any  one  bank  on  any  other  induced  a  general  drawing,  and 
all  became  involved  in  commotion  and  'war'  upon  each  other.  If 
time  were  allowed,  the  debtor  banks  would  finally  be  obliged  to 
pay  the  liquidating  balance ;  but  three  o'clock  arrested  the  process, 
and  the  banks  where  the  demand  was  then  in  force  were  obliged 
to  disburse  the  coin.  It  was  not  unusual  for  a  debtor  bank  to  add 
fifty  thousand  dollars  to  its  specie  at  the  close  of  the  day,  with 
its  debt  doubled,  while  a  creditor  bank  to  half  a  million  in  the 
general  account,  would  find  itself  at  three  o'clock  depleted  of  one  or 
two  hundred  thousand  dollars  in  coin." 

This,  it  will  be  noticed,  was  when  the  bank  settlements  at  New 
York  could  not  have  reached  to  one-sixth  of  their  present  amount. 
It  may  be  safely  affirmed  that  the  vastly  larger  transactions  of  the 
present  day  could  not  be  settled  in  the  old  way.  It  was  not  until 
after  much  deliberation  and  considerable  opposition  that  a  Clearing- 
house was  established  at  New  York,  but  the  success  of  the  experi- 
ment soon  dispelled  all  doubts  of  its  utility  and  necessity,  and  led 
to  the  adoption  of  the  system  in  other  cities. 


222  PRACTICAL    BANKING. 


CHAPTER  II 
ORGANIZATION  AND    MECHANICAL  ARRANGEMENTS. 

To  establish  a  Clearing-house  a  number  of  banks  associate  them- 
selves together,  under  certain  regulations  more  or  less  elaborate,  ac- 
cording to  circumstances,  for  the  purpose  of  settling  daily,  at  one 
time  and  place,  the  mutual  demands  arising  between  the  banks.  The 
officers  of  such  an  association  are  usually  a  president,  or  chairman, 
a  secretary,  treasurer  and  manager,  with  a  Clearing-house  commit- 
tee, and  such  others  as  the  wants  of  the  association  require.  At 
New  York,  in  addition  to  the  Clearing-house  committee,  there  are  a 
committee  on  conference,  a  nominating  committee,  a  committee  on 
admissions,  and  an  arbitration  committee.  The  manager  is  some- 
times chosen  by  the  association,  usually  by  the  Clearing-house  com- 
mittee, which  generally  has  charge  of  all  matters  incidental  to  the 
operations  of  the  association  not  otherwise  specially  provided  for. 
The  larger  Clearing-houses  have  also  an  assistant  manager.  The 
salary  of  the  manager  is  fixed  pursuant  to  the  rules  of  the  associa- 
tion, and  he  gives  bonds  with  approved  sureties  for  the  faithful  dis- 
charge of  his  duties.  At  New  York  the  manager  gives  bonds  for 
$10,000,  clerks  for  $5,000  each.  He  has,  under  the  control  of  the 
Clearing-house  committee,  immediate  charge  of  all  business  at  the 
Clearing-house,  so  far  as  relates  to  the  manner  in  which  it  shall  be 
transacted ;  and  the  clerks  of  the  establishment,  if  any,  as  well  as 
the  settling  clerks  and  porters  or  messengers  of  the  associated 
banks,  while  at  the  Clearing-house,  are  under  his  direction. 

At  a  fixed  hour,  each  day,  representatives  of  the  banks  meet  at  a 
specified  place,  called  a  Clearing-house,  and  exchange  the  checks  or 
other  paper  which  they  hold  against  one  another.  The  paper 
which  the  banks  take  to  the  Clearing-house  is  called  the  exchange, 
and  the  total  amount  of  paper  exchanged  is  called  the  clearings,  or 
exchanges.  Those  banks  which  bring  to  the  Clearing-house  a  less 
amount  in  checks  or  other  paper  than  they  take  away— called  debtor 
banks — pay  at  a  later  hour  on  the  same  day  to  the  banks  which 
bring  more  than  they  take  away — called  creditor  banks — a  balance, 
either  directly  or  through  the  Clearing-house,  in  cash  or  its 
equivalent.  The  payment  of  the  balances  by  the  debtor  banks,  and 
the  receipt  of  these  balances  by  the  creditor  banks,  complete  each 


ORGANIZATION   AND   MECHANICAL  ARRANGEMENTS.  22$ 

day's  settlements.  As  the  aggregate  amount  brought  is  always  the 
same  as  the  amount  taken  away,  so  the  balances  due  from  the 
debtor  banks  must  be  exactly  equal  to  the  amount  due  to  the 
creditor  banks.  The  clearing  system  is  the  application  on  a  large 
scale  of  the  principle  of  set-off.  "  Clearing,"  says  Mr.  H.  D.  Lloyd, 
in  the  Cyclopedia  of  Political  Science,  Political  Economy,  and  the  Po- 
litical History  of  the  United  States,  "  is  the  settlement  of  mutual 
claims  by  the  payment  of  differences."  The  saving  of  time  and  in 
the  handling  of  cash  is  an  obvious  advantage  flowing  from  the 
union  of  banks  in  a  Clearing-house.  There  are  other  advantages, 
net  less  important,  which  will  appear  on  further  examination. 

The  mechanical  arrangements  used  by  the  various  Clearing-houses 
in  effecting  their  settlements  differ  according  to  the  character  and 
magnitude  of  the  operations  carried  on.  At  some  of  the  smaller 
Clearing-houses  there  is  no  permanent  place  for  making  the  ex- 
changes, the  banks  taking  turns.  Where  the  transactions  are  of 
large  amount,  however,  it  becomes  necessary  to  have  a  room  spe- 
cially fitted  up  for  the  purpose.  The  New  York  Clearing-house, 
long  quartered  in  the  building  of  the  Bank  of  New  York,  some 
years  ago  secured  more  commodious  quarters  in  a  building  which  is 
owned  by  the  Association.  Desks,  one  for  each  bank,  are  arranged 
in  three  parallel  rows,  each  desk  having  the  name  of  the  bank  for 
which  it  is  designed  lettered  on  a  silver  plate  in  front,  and  being 
numbered  with  the  bank's  number.  At  Boston,  the  desks  in  the 
Clearing-house  are  arranged  in  an  oval  or  elliptical  form,  facing  out- 
ward, as  they  were  in  the  old  Clearing-house  rooms  at  New  York. 
The  method  of  doing  the  business  is  substantially  the  same  in  both. 
The  number  of  banks  in  the  Clearing-house  at  Boston,  December 
31,  1883,  was  fifty-two,  and  at  New  York  sixty-four,  and  the  capital 
and  profits  represented  in  the  former  is  $50,500,000,  against  $  101,- 
930,700  in  the  latter;  yet  the  clearings  at  New  York  are,  on  an 
average,  nearly  eleven  times  as  great  as  those  of  Boston,  while  the 
balances  are  only  about  four  times  as  great. 


224 


PRACTICAL  BANKING. 


CHAPTER    III. 


PKEPABATION    OP    THE   EXCHANGE. 


The  following  analysis  of  Clearing-house  transactions  is  specially 
applicable  to  New  York  and  Boston.  The  peculiarities  of  other 
Clearing-houses  will  be  noticed  later  on.  Among  the  first  things 
done  with  exchangeable  paper  when  received  is  its  classification  ac- 
cording to  the  banks  at  which  it  is  payable.  The  teller  into 
whose  hands  it  comes  usually  has  a  pigeon-hole  for  each  bank, 
numbered  with  the  Clearing-house  number  of  that  bank,  in  which 
the  paper  payable  thereat  is  placed.  At  many  of  our  Clearing- 
houses it  is  obligatory,  and  at  all  common,  to  place  upon  this 
paper  some  distinguishing  mark,  usually  the  name  and  number  of 
the  bank  clearing  it,  to  indicate  the  channel  through  which  it  has 
passed.  In  preparing  the  exchange  for  the  Clearing-house,  the 
amounts,  merely  of  the  various  items  making  up  the  demands  against 
each  bank,  are  entered  upon  a  blank  called  an  "  Exchange  Slip," 
as  follows  : 


&/  Teller. 

No.  i. 

From  No.  61. 
FOURTH  NATIONAL  BANK 


2:500  oo 
500 

000 

150 

800 

5500 


50000 

40:000 
85:000 

I95J450 
4  500  oo 
50  oo 


125 


60000  oo 

8,500 

268  625  50 


50 


The  figures  here  given,  it  will  be 
understood,  are  presented  merely 
by  way  of  illustration,  and  not  as 
representing  in  character  or  amount 
the  transactions  of  the  Fourth  Na- 
tional Bank.  The  first  footing  on 
the  Exchange  Slip  ($195,450  in 
this  case)  represents  the  amount  of 
checks  or  other  items  deposited  to 
the  close  of  business  on  a  given 
day  for  the  clearing  of  the  next 
day.  The  addition  of  the  items  re- 
ceived the  next  morning  by  mail 
or  otherwise  in  time  for  the  clear- 
ing, makes  the  second  footing  (in 
this  case,  $268,625.50)  being  the 
total  amount  of  claims  carried  to 
the  Clearing-house  by  the  Fourth 
National  Bank  against  No.  i,  the 
Bank  of  New  York. 


PREPARATION   OF  THE  EXCHANGE. 


22J 


There  is  a  different  exchange  slip  for  each  bank,  properly  labeled,, 
to  show  for  which  bank  the  exchange  is  destined.  On  this  slip  are 
entered  the  amounts  merely,  of  the  different  checks  or  other  items- 
taken  to  the  Clearing-house.  The  items  on  each  slip  are  footed  up, 
and  the  totals  entered,  the  first  ^footing  in  the  first  debit  column,, 
and  the  final  footing  in  the  second  debit  column  of  another  blank 
called  the  "Settling  Clerk's  Statement,"  ruled  as  follows,  and  con- 
taining the  names  and  numbers  of  all  the  banks,  a  'part  of  which 
are  omitted  to  save  space : 

No.  61,  FOURTH  NATIONAL  BANK. 

Settling  Clerk's  Statement,  January  j6,  1884. 


No. 

Banks. 

Debit. 

Debit. 

Credit. 

i 

2 

Bank  of  N.  Y.  Nat'l  Bkg.  Ass'n. 
Manhattan  Co  

195,450  oo 
250,000  oo 

268,625  50 
310,000  oo 

I 
2: 

3 

Merchants'  National  Bank.  .  .  . 

50,000  oo 

71,000  oo 

•f 

4 

Mechanics'  National  Bank  

175,000  oo 

200,000  oo 

5 

125,000  oo 

145,000  oo 

6 

90,000  oo 

125,000  oo 

7 

Phenix  National  Bank  

225,000  oo 

260,00000 

7 

(  Other  banks  omitted.  ) 

1,427,947  78 

2,258,772  28 

2,538,397  78 

7,6^8,  7Q7  78 

•*,2Q7  12"?  O4. 

14I.O74  74 

3,638,397  ?8 

In  order  to  have  the  exchanges  seasonably  and  carefully  pre- 
pared, the  first  debit  column  is  made  up  and  footed  at  the  close 
of  business  each  day  for  the  next  clearing,  the  entries  consisting 
of  the  first  footings  on  the  various  Exchange  Slips,  as  for  instance, 
$195,450  on  the  one  given.  The  heaviest  part  of  the  work  is  thus 
done  the  day  before  the  clearing,  leaving  for  the  limited  time  left 
in  the  morning  only  the  work  of  completing  the  additions  to  the 
exchange  slips,  and  inserting  the  final  totals  ($268,625.50  on  the 
Exchange  Slip  above)  in  the  second  debit  column,  which  shows 
the  total  exchange  sent.  The  credit  column  is  left  blank  to  be 
filled  up  at  the  Clearing-house  with  the  amounts  of  the  return 
exchange  representing  checks  or  other  items  payable  by  the  Fourth 
National  Bank. 

On  the  next  page  is  reproduced  an  actual  "Settling  Clerk's  State- 
ment" of  one  of  the  Boston  banks,  showing  an  exact  transcript  o£ 
the  bank's  transactions  with  the  Clearing-house  on  a  certain  day.. 
Besides  the  interest  attaching  to  it  as  a  record  of  actual  transac- 
tions, it  will  serve  to  make  the  subject  clearer  to  those  not  familiar 
with  the  details  of  Clearing-house  business. 


PRACTICAL    BANKING. 

NATIONAL  BANK. 

Settling  Clerk's  Statement, 


No. 

.#*«&?. 

First  Debit. 

Total  Debit. 

Banks     Cr. 

No. 

i 

Massachusetts  National.   ... 

118  28 

6  118  28 

2 

National  Union             

7C  06 

7C   06 

I    287      TO 

2 

Old  Boston  National  

•\  ,082  O2 

•>  082  O2 

State  National.         

2.OOQ  42 

2  122    58 

4C(X)  OO 

1 

New  England  National  

1,401  co 

599  25 
i  401  oo 

38  95 
40  c  20 

i 

-7 

I  OOO  OO 

?• 

2 

National  Eagle        

50  oo 

I  268    57 

IQ  c.  c6 

g 

120  60 

IO 

•J    ^   *T* 

16  co 

IO 

II 

I5Q  74 

2  O7I    82 

c  410    CC 

ii 

12 

Atlantic  National  

14   70 

14   7O 

QI   15 

12 

H 

Merchants'  National  

1,310  88 

8  156  05 

*JT* 

664    C7 

11 

14 

Traders'  National  

5  7O 

5  70 

14 

1C, 

Hamilton  National  

9  CO 

900 

14  42 

IGJ 

T6 

Market  National  

60   QI 

69  91 

16 

17 

Second  National  

28  oo 

1,  1*56  71 

1,518   56 

17 

T8 

Atlas  National  

10,054  68 

10,054  68 

648   11 

T8 

19 

•20 

Shoe  and  Leather  National.  . 
Shawmut  National  

164  14 
601  40 

164  14 

2.884  05 

^ 
112  64 

1,284  6l 

J9 
20 

21 

National  Exchange  

<«: 

809  01 

1,251    14 

764  10 

21 

22 

^3 

•24 

National  Bank  of  Commerce. 
National  Bank  of  N.  America 
Faneuil  Hall  National  

II    7O 
QQ   26 

311    12 
2  OQQ  26 

9,175  33 
164  oo 

22 

23 

24 

•25 

National  Webster  

46   71 

46   11 

22    l6 

25 

3 

Eliot  National  

7OO 

1C.  -176    CO 

306  oo 

76 

•27 

Howard  National    

4  -»O  8l 

41O  8l 

112   87 

27 

3 

Suffolk  National  

l6  QI 

^ff  "J 

IO  QI 

1,142  4Q 

28 

^O 

Globe  National                

2Q 

31 

"12 

Freeman's  National  
Boylston  National     .... 

63  36 

68  16 

203   05 

1,264  ^o 

31 
72 

-T7 

Blackstone  National         .... 

I  147  82 

I  ^O7  82 

IAC    « 

77 

•14 

Boston  National            .  . 

221   55 

22^    5*5 

714  64 

^A 

•je 

Maverick  National 

2O  748  47 

4.7  4OO   7^ 

147  80 

P 

37 

-so 

National  Hide  &  Leather.  .  . 
National  Bank  Redemption. 
First  National                    .... 

"  59 
5,399  99 
40  oo 

294  04 

105,686  79 

241   4.1 

294  77 
32,307  33 

2  QCO  l6 

37 

7O 

AQ 

National  Revere          ... 

4O   2? 

21  I  7^   II 

I  222   90  • 

4O 

41 

-42 

National  Bank  of  Republic  . 
Continental  National  .  . 

l62   60 

15,950  oo 

162  69 

1,053  80 
2O  IOQ  OO 

41 
42 

^4/j 

Mt.  Vernon  National  .  .  . 

610  83 

610  83 

2O  75 

41 

44 

Third  National 

70  oo 

70  oo 

«"    /O 
7O6   12 

44 

AS 

Everett  National           .  . 

12    19 

45 

6 

National  Security 

no  70 

no  70 

i  887  86 

'2 

47 

Broadway  National 

217  4^5 

47 

48 

49 
SO 

f  £ 

Nat'l  Bank  Commonwealth. 
Central  National  
Manufacturers'  National  .... 
Fourth  National 

355  08 
22  45 
7  oo 
26  84 

355  08 
505  97 
7  oo 
17  647  81 

i,775  97 

30  oo 
54,141  20 

is 

49 
So 

ei 

*;2 

Metropolitan  National 

f 

2Q2   2O 

292  26 

65  10 

52 

e-7 

Merchandise  National. 

50  oo 

c-i 

*?4 

Lincoln  National 

228   04 

228  04 

241  Q5 

CA 

Footings  . 

51,128   80 

271  212   l6 

I5O  655    56 

Balance  ,  

120,576  80 

271,232   36 

A  study  of  this  statement  will   make   apparent  one  of    the    great 
economies  effected  by  the   Clearing-house  system,  namely,   the  con- 


PREPARATION  OF  THE  EXCHANGE.  22/ 

solidation  into  one  item  of  the  accounts  with  all  the  banks.  Thus, 
in  the  statement  here  presented,  the  forty-five  debits  are  repre- 
sented by  the  single  total  debit  of  $271,232.36,  and  the  forty-eight 
credits  by  the  total  of  $150,655.56,  while  instead  of  fifty  mutual 
balances  to  adjust,  the  single  item  of  $  120,576.80  covers  the 
whole. 

The  first  column  represents  the  first  footing  on  the  exchange  slip, 
being  the  amount  of  clearing  matter  received  up  to  the  close  of 
bank  hours  for  the  next  day's  clearings.  The  second  column  repre- 
sents the  total  debit,  after  adding  the  checks  or  other  paper  re- 
ceived the  next  morning  by  mail  or  otherwise,  in  season  for  the 
day's  exchanges.  The  blank  for  the  Settling  Clerk's  statement  is 
the  same  for  all  the  banks.  The  blank  used  at  Boston  contains 
another  column  between  the  two  debit  columns,  designed  for  "Ad- 
ditions," to  show  the  exchange  received  each  morning  in  season 
for  the  day's  clearing.  As  this  column  is  not  needed,  and  is  fre- 
quently not  used,  it  is  omitted  in  the  form  above  given.  The  credit 
column  is  filled  up  at  the  Clearing-house  with  the  amounts  of  the 
return  exchange  brought  by  the  other  banks.  When  the  exchange 
slips  are  completed  and  footed,  each  slip  is  attached  to  the  outside 
of  the  package  of  checks  and  vouchers  which  it  represents,  or  the 
amount  is  marked  on  the  outside  of  a  sealed  envelope  containing 
them.  The  different  packages  are  also  arranged  in  the  order  in 
which  they  are  to  be  delivered  at  the  Clearing-house,  and  placed  in 
a  satchel  or  other  enclosure  to  be  carried  thither.  The  entries  in  the 
Settling  Clerk's  Statement  are  carefully  verified  and  footed,  showing 
the  bank's  total  debit  against  the  other  banks,  and  its  credit,  that  is 
the  amount  with  which  it  is  credited,  at  the  Clearing-house.  This 
total  is  compared  with  the  paying  teller's  footings,  and  if  both  agree, 
the  correctness  of  the  statement  is  so  far  proved.  It  is  rare  that  an 
error  occurs  in  the  debit  figures.  The  total  debit  is  entered  on  an- 
other blank  called  a  "  Credit  Ticket,"  as  follows : 


No.  61.  NEW  YORK  CLEARING-HOUSE, 

January  17,  1884. 

Credit  FOURTH  RATIONAL  BANK $  3,638,39?  •  7 

J.  SMITH,  Settling  Clerk. 


The  amount  of  the   exchange  for  each  bank   is   also   entered   in 
another  blank  called  a  "Check  Ticket,"  as  follows: 


228 


PRACTICAL    BANKING. 


No.  1. 

BANK   OF   NEW  YORK, 

NATIONAL  BANKING  ASSOCIATION. 

From  No.  61, 
Fourth  National  Bank. 
$268,265.50. 


A  similar  ticket  is  made  up  for  each  of  the  other  banks,  and  is 
delivered  to  its  settling  clerk  at  the  Clearing-house,  by  which  ta 
"check"  the  entries  in  the  credit  column  of  his  statement,  since 
every  debit  entry  on  one  statement  must,  if  the  figures  are  cor- 
rectly transcribed,  correspond  with  a  credit  entry  on  some  other 
statement.  These  check  tickets  may  be  made  up  and  delivered  by 
the  settling  clerks  at  the  Clearing-house  while  the  settlement  is  in 
progress. 

A  copy  of  the  debit  columns  in  the  Settling  Clerk's  statement  is 
made  on  another  partly  corresponding  blank,  with  a  space  on  the 
right  for  signatures,  instead  of  the  credit  column.  This  is  called  the 
"  Settling  Clerk's  Receipt,"  and  is  taken  by  the  messenger  who 
carries  also  the  packages  of  checks  or  vouchers.  The  settling 
clerk  carries  his  statement  and  the  credit  ticket.  At  all  the  larger 
Clearing-houses  each  bank  is  represented  by  these  two  clerks,  the 
messenger  or  porter,  and  the  settling  clerk.  At  New  York  some  of 
the  banks  have  two  settling  clerks;  the  whole  force  of  clerks  em- 
ployed by  the  sixty-four  banks  being  one  hundred  and  sixty. 


HOW  CLEARINGS  ARE  MADE.  229 


CHAPTER    IV. 
HOW   CLEARINGS   ABE   MADE. 

At  a  few  minutes  before  ten  o'clock  the  clerks  begin  to  arrive 
at  the  Clearing-house,  and  each  settling  clerk  as  he  enters  passes 
to  the  manager's  desk,  his  credit  ticket  showing  the  amount  of  ex- 
change with  which  his  bank  is  to  be  credited.  These  amounts 
are  entered  as  rapidly  as  possible  in  the  credit  column  of  another 
blank  called  the  "Clearing-house  Proof,"  which  is  given  on  a  sub- 
sequent page.  So  rapidly  is  this  work  done  by  an  expert,  that 
within  a  very  few  minutes  after  the  last  credit  ticket  is  received 
the  entries  in  the  credit  column  are  completed  and  footed,  showing 
the  total  exchange  of  the  day  if  no  error  has  been  made.  Just  be- 
fore ten  o'clock  a  stroke  of  the  manager's  bell  calls  the  clerks  to 
order.  They  take  their  places  at  their  respective  desks,  the  settling 
clerks  inside,  and  the  messengers  outside,  the  former  with  his  state- 
ment so  far  as  completed,  the  latter  with  the  "  Settling  Clerk's 
Receipt,"  and  the  actual  vouchers  for  the  banks  to  which  they 
are  to  be  presented.  Another  stroke  of  the  bell,  at  ten  o'clock 
precisely,  is  the  signal  for  the  exchanges  to  commence.  No  varia- 
tion from  this  time  is  allowed  on  any  pretext  whatever,  and  on 
this  point  the  Clearing-house  is  no  respecter  of  persons.  A  few 
years  ago  Mr.  Windom,  Secretary  of  the  Treasury,  desired  to  wit- 
ness the  exchanges,  and  was  apprised  of  the  inflexible  punctuality 
required.  He  arrived  some  minutes  late,  only  to  find  that  the 
clearings  had  taken  place  just  as  if  he  had  been  an  individual  in  a 
private  station. 

At  the  second  stroke  of  the  bell,  each  messenger  advances  one 
step,  which  brings  him  to  the  desk  of  the  first  bank  at  which  he 
is  to  deliver  vouchers.  He  hands  over  the  exchange  package  de- 
signed for  that  bank,  also  the  "  Settling  Clerk's  Receipt,"  on  which 
the  settling  clerk  enters  his  initials  against  the  amount,  as  a  voucher 
to  show  that  the  exchange  has  been  received.  The  receipt  is  then 
handed  back  to  the  messenger,  who  passes  on  and  repeats  the 
operation  at  the  desk  of  every  other  bank  for  which  he  has  any 
vouchers,  finally,  coming  around  to  his  own  desk  after  having  de- 
livered all  his  packages.  Supposing  him  to  have  a  package  for 
every  bank  except  his  own,  each  of  the  sixty-four  messengers  has  de- 


230 


PRACTICAL    BANKING. 


livered  sixty-three  packages.  The  number  of  accounts  thus  settled 
between  the  banks  is,  therefore,  64  x  63  =  4032.  The  time  required 
for  delivering  the  exchanges  is  ten  minutes  at  New  York,  and  five 
minutes  at  Boston.  In  the  old  way  of  exchanging  it  would  have 
taken  several  hours.  At  Boston  there  is  no  "  Settling  Clerk's  Re- 
ceipt," and  the  messengers  deliver  at  each  desk  the  check  ticket 
already  mentioned,  showing  the  amount  of  each  package  delivered. 

The  messenger  having  completed  his  circuit,  takes  back  to  his 
bank  the  return  exchange  left  at  the  desk  of  his  bank  by  the 
messengers  of  the  other  banks,  with  a  statement  showing  in  round 
numbers  the  result  of  the  clearing.  The  return  exchange,  consist- 
ing of  the  vouchers  payable  at  the  bank  to  which  they  are  de- 
livered through  the  Clearing-house,  is,  when  brought  to  the  bank, 
delivered  to  the  paying  teller  for  examination,  after  which,  if  they 
are  all  right  and  the  drawers  have  sufficient  funds,  the  checks  and 
other  paper  are  delivered  to  the  bookkeeper  and  charged  to  the 
proper  accounts,  thus  closing  the  transaction.  All  checks,  drafts, 
notes,  or  other  items  in  the  exchanges,  returned  as  "  not  good,"  or 
missent,  are  to  be  returned  on  the  same  day  to  the  bank  from 
which  they  were  received,  and  this  bank  must  make  good  the 
amount  received  through  the  Clearing-house  for  them;  but  when 
returned  for  want  of  endorsement  or  informality,  they  may,  after  be- 
ing certified  by  the  returning  bank,  be  passed  through  the  ex- 
changes of  the  following  morning  to  the  amount  of  $5,000.  Errors 
in  the  exchanges  are  also  adjusted  between  the  banks,  the  Clearing- 
house not  being  responsible. 

After  the  departure  of  the  messengers  from  the  Clearing-house,  the 
settling  clerks  continue  their  work,  none  of  them  being  allowed  to 
leave  until  the  settlements  are  completed,  without  the  consent  of 
the  manager.  Each  clerk,  as  soon  as  he  has  footed  the  credit  col- 
umn of  his  statement  and  carefully  revised  the  work,  strikes  a  bal- 
ance between  the  total  debit  and  the  total  credit  exchange,  which 
shows  how  much  his  bank  is  to  receive  or  pay.  He  then  copies 
these  footings  into  what  is  called  the  "  balance  ticket,"  as  follows  i 


No.  61.  NEW  YORK  CLEARING-HOUSE, 

January  17,  1884. 

Debit  FOURTH  NATIONAL  BANK  amount  received.  .$3,297,323  04 
Credit        •  «  »  «        brought..    3,638,397  78 

$ Debit  balance  due  Clearing-house. 

Credit  balance  due  THE  FOURTH  NATIONAL  BANK.    $341,074  74 


This  is  passed  to  the  manager's  desk.    The  amount  brought  has       \ 
been  already,  as  before  stated,  entered   in  the  credit  column  of  the     r 
Clearing-house  proof.     The  amount  received  is  now  entered   in  the 


HOW  CLEARINGS  ARE  MADE.  23! 

debit  column,  and  the  balance  in  the  column  "  Due  Banks "  against 
the  name  of  the  Fourth  National  Bank.  The  next  bank  may  have 
a  balance  against  it,  which  should  be  entered  in  the  left-hand  col- 
umn under  the  heading  "  Due  Clearing-house."  When  all  the  bal- 
ance tickets  have  been  delivered  at  the  manager's  desk,  and  the 
entries  from  them  made  in  the  proof,  the  debit  and  balance  col- 
umns are  footed,  the  credit  column  having  been  already  added.  As 
the  total  amount  brought  must  be  the  same  as  the  total  taken 
away,  the  debit  and  credit  columns  of  the  proof  will  agree  if  the 
work  is  correct,  as  also  the  totals  "Due  Clearing-house"  and  "Due 
Banks."  If  the  footings  show  this  agreement,  the  proof  is  made, 
and  the  settling  clerks  are  allowed  to  leave.  It  is  a  very  rare  oc- 
currence that  the  footings  agree  on  the  first  trial.  An  inspection 
of  the  Clearing-house  proof  will  show  that  it  contains  about  thir- 
teen hundred  figures.  Each  entry  in  the  proof  may  represent  the 
result  of  sixty-three  entries  in  the  settling  clerk's  statement,  and 
these  probably  contain  from  60,000  to  70,000  figures,  made  and 
footed  with  great  rapidity,  the  entries  being  frequently  made  with 
pencil.  The  credit  column  of  the  settling  clerk's  statement,  too, 
must  be  made  up  and  footed  within  the  short  time  allowed  at  the 
Clearing-house.  Under  these  circumstances  it  is  natural  that  mis- 
takes should  frequently  occur,  any  one  of  which  destroys  the  exact 
balance  which  should  exist  between  the  debit  and  credit  sides  of 
the  proof.  When  the  proof  is  footed,  and  the  footings  fail  to 
agree,  the  manager  or  his  assistant  announces  the  fact :  "  The  dif- 
ference is  $5,530.25,"  or  whatever  the  amount  may  be.  While  the 
preparation  of  the  proof  has  been  in  progress  the  clerks  have  been 
at  work  verifying  their  figures  by  means  of  the  check  tickets  and 
otherwise,  and  the  error  or  errors  may  have  been  discovered  as 
soon  as  the  discrepancy  is  announced.  Usually  all  errors  are  dis- 
covered and  corrected  within  an  hour  from  the  announcement  of 
the  clearing,  but  sometimes  an  error  occurs  which  defies  detection 
for  a  long  time,  and  keeps  the  whole  force  of  clerks  at  work  for 
two  hours  or  more.  Forty-five  minutes  are  allowed  for  the  comple- 
tion of  the  settlement.  Any  delay  beyond  this  subjects  the  delin- 
quent bank  to  a  fine.  At  11.15  A.  M.  tne  nnes  are  doubled,  and  at 
12  M.  quadrupled,  so  that  the  fines  accumulate  rapidly  on  the  de- 
linquent bank  after  11.15.  Tne  object  is  to  offer  an  incentive  to 
the  banks  to  have  at  the  Clearing-house  clerks  whose  figures  are 
distinct  and  legible,  and  who  are  rapid  and  accurate  calculators.  If 
the  examination  of  the  check  tickets  fails  to  disclose  the  error 
or  errors,  the  settling  clerks  are  ordered  by  turns  to  pass  around 
to  the  different  desks,  each  calling  off  the  amount  of  his  ex- 
change to  every  other.  This  is  usually  the  final  method  of  re- 
vision, and  seldom  fails  to  disclose  the  error.  The  Settling  Sheets 
are  sometimes  exchanged  to  facilitate  the  detection  of  errors 


2J2  PRACTICAL    BANKING. 

in  the  footings..  The  corrections  as  fast  as  made  are  incorpo- 
rated with  the  proof,  and  the  figures  appended  to  the  footings, 
added  or  subtracted,  as  the  case  may  be,  preserve  a  perma- 
nent record  of  each  correction.  Finally,  the  manager,  or  his  as- 
sistant, calls  off  from  a  balance  sheet  corresponding  to  the  two 
main  columns  of  the  proof,  the  amount  in  thousands  of  dollars  to 
the  debit  or  credit  of  each  bank  in  the  exchanges  of  the  day,  also 
the  time  at  which  the  proof  was  announced,  and  the  fines  and 
•corrections,  which  the  settling  clerks  transfer  to  corresponding 
blanks  in  their  possession.  These  they  take  away  for  the  informa- 
tion of  their  respective  banks,  which  thus  have  a  record  of  the 
Clearing-house  dealings  of  all  their  associates. 

The  table  on  the  next  page  is  a  specimen  "  Clearing-house  Proof." 
The  totals  show  the  actual  transactions  on  the  day  named,  but  the 
figures  are  transposed  so  that  they  do  not  show  the  actual  trans- 
actions of  any  single  bank,  these  not  being  published.  Conse- 
quently, some  of  the  banks  appear  as  having  much  larger,  and  others 
as  having  much  smaller  transactions  than  they  actually  had. 

It  is  the  custom  at  some  Clearing-houses  to  add  together  both 
the  debtor  and  creditor  sides  of  the  proof,  thus  duplicating  their 
figures,  but  the  footing  of  one  side  evidently  represents  the  total 
amount  of  the  vouchers  exchanged.  The  highest  bank  number  repre- 
sented below  being  eighty-two,  the  natural  inference  would  be  that 
this  was  the  number  of  members  in  the  Clearing-house.  An  inspec- 
tion of  the  proof  will,  however,  show  that  there  are  eighteen  missing 
numbers,  leaving  but  sixty-four  members  at  the  date  given.  The 
missing  numbers  represent  banks  which  were  once  members,  but 
are  so  no  longer,  most  if  not  all  of  them  having  failed  or  dis- 
continued business.  The  number  eighty-two  represents  the  total 
number  of  members  that  have  ever  belonged  to  the  Clearing-house. 
The  failure  of  the  Marine  National  Bank  makes  another  missing 
number,  leaving  only  sixty-three  members,  of  which  sixty-two  are 
National  or  State  banks,  and  one  the  United  States  Assistant 
Treasurer  at  New  York,  who  joined  the  Clearing-house  in  1878. 
The  Assistant  Treasurer  is  almost  uniformly  debtor  to  the  Clearing- 
house, and  rarely  receives  a  balance  from  the  associated  banks. 


NEW 


HOW  CLEARINGS  ARE  MADE.  233 

YORK  CLEARING-HOUSE  PROOF,  THURSDAY,  JANUARY  I;TH,  1884. 


Banks. 

Due  Clear- 
ing-house. 

Banks.     Dr. 

i      ' 

Banks.     Cr. 

Due  Banks. 

I 

3 
4 

1 
I 

10 

ir 

12 

'4 
J9 

20 
31 

23 
25 

29 

30 

32 
33 
34 

40 
42 
43 
44 
45 
47 
49 
50 
53 

5* 
O5? 

6a 

03 
04 

a 

72 

74 

1 

81 
82 

B'k  of  N.Y.  Nat'l  Bk'g.  Ass'n. 
Manhattan  Company  

340,166  60 
72,773  87 

100,768  39 

363,755  14 
768,506  78 
350,350  oo 

20,378  71 
2,879  28 
171,677  53 
302,353  98 
118,407  94 

i8,533  68 
49,085  42 

57,569  69 
982,829  90 
7,773  16 
23,407  05 
73,039  08 

3,055  80 

79,083  87 
495,589  87 

26,098  22 

232,579  90 
71,549  58 

70,604   13 
I3,86l   23 

29,40691 
349^169  67 

30,811  55 

555,426  59 
145,288  58 
4,992,040  48 
1,558,990  98 
391,230  71 
3,953,478  88 
355,740  06 
295,991  67 
327,909  22 
3,172,963  98 
361,734  69 
2,238,239  44 
5,3I2,533  22 
205,107  29 

976,559  38 
3,758,949  54 
3,878,212  46 
5,967,092  97 
191,849  61 
60,291  80 
9,649,314  97 
1,257,022  39 
387,803  45 
960,685  27 
4,307,775  oo 
1,207,505  86 
236,562  71 
229,831  48 
187,623  38 
3,087,088  42 
529,928  31 
1,157,77!  97 
174,925  37 
204,15*  12 
191,562  14 

2,375,331  70 
175,124  66 
50,190  04 
96,509  06 

8,041,705  30 
2,500,726  63 
3,797,522  36 
3,576,107  39 
8,436,107  93 
2,8x5,333  78 
3,297,323  04 
5,040,416  87 
282,296  79 
516,945  63 
1,838,598  47 
479,168  18 
2,843,717  oi 
144,180  40 
44,478  91 
99,738  66 
1,406,323  07 
174,674  69 
I3,98i,992  88 
4,371,989  88 
5,682,807  77 
576,078  07 
1,262,334  29 
185,452  43 
2,534,168  75 

640,226  05 
212,612  44 
5,019,117  85 
1,621,001  58 
442,737  91 

*370,'645  55 
339,918  24 
346,296  51 
3,100,190  ii 
465,735  40 
2,243,398  34 
5,6i5,593  10 
104,338  90 
612,804  24 
2,990,442  76 
3,527,862  46 
5,995,624  06 
171,470  90 
57,412  52 

9,477,637  44 
954,668  41 

269,395  Si 
996,475  44 
4,423,944  75 
1,188,972  18 
241,168  93 
180,746  06 
245,019  99 
3,215,685  56 
472,358  62 
174,942  07 

167,152   21 
180,744  07 
118,523  06 

2,821,885  55 
206,311  33 

47,I34  24 
157,119  62 
9,106,865  27 
2,857,928  13 
3,917,726  81 
3,680,171  46 
8,458,096  40 
2,736,249  91 
3,638,397  78 
4,544,827  oo 
411,134  69 
490,847  41 
1,606,018  57 
407,618  60 
2,938,415  45 
73,576  27 
30,617  68 
121,461  32 
1,829,143  74 
145,267  78 
13,988,451  65 
4,520,951  88 
6,269,436  oi 
567,606  95 
913,164  62 
208,589  21 

2,503,357   20 

84,799  4f 
67,32386 

27,077  37 
62,010  60 

51,507  20 

Merchants'  National  Bank  

Mechanics'  National  Bank  

Bank  of  America 

Phenix  National  Bank  
National  City  Bank  

14,905  49 
43,926  57 
18,387  29 

103,980  71 
5,158  90 
303,059  88 

28,53*  09 

35,790  17 
116,169  75 

4,606  22 

57,39°~6i 
128,597  14 

446,553  85 
31,186  67 

60,610  56 
1,065,159  97 
357,201  50 
120,204  45 
104,064  07 
21,988  47 

341,074  74 
128,837  90 

94,698  44 

21,722  66 
422,820  67 

6,458  77 
148,962  oo 
586,628  24 

23,136  78 

Tradesmen's  National  Bank.  .  . 
Fulton  National  Bank  

Chemical  National  Bank 

Merchants'  Ex.  National  Bank. 
Gallatin  National  Bank 

J  Nat'l  Butchers  &  Drovers'  B'k. 
Mechs.  &  Traders'  Nat'l  Bank. 
Greenwich  Bank 

Leather  Manufac.  Nat'l  Bank. 
Seventh  Ward  National  Bank. 
Bank  of  the  State  of  New  York. 
American  Exch.  Nat'  IBank... 
National  Bank  of  Commerce.  . 
National  Broadway  Bank  

1  Mercantile  National  Bank  
Pacific  Bank  

National  B'k  of  the  Republic.. 
Chatham  National  Bank  

People's  Bank  

Bank  of  North  America  

Hanover  National  Bank  

Irving  National  Bank  

Metropolitan  National  Bank... 
National  Citizens'  Bank  

Nassau  Bank  

Market  National  Bank  

St   Nicholas  Bank         

Nat'l  Shoe  &  Leather  Bank.  .  . 
Corn  Exchange  Bank  

Continental  National  Bank.... 
Oriental  Bank 

Marine  National  Bank 

Imp.  &  Traders'  Nat'l  Bank.  .  . 
1  National  Park  Bank 

Wall  Street  National  Bank...  . 
North  River  Bank  

East  River  National  Bank  
Fourth  National  Bank  

Central  National  Bank  

Second  National  Bank 

Ninth  National  Bank  

1  First  National  Bank  

Third  National  Bank  

N.  Y.  National  Exch.  Bank..  .  . 
Bowery  National  Bank  

New  York  Co.  National  Bank. 
German-American  Bank  

Chase  National  Bank  

Ass't  Treas.  U.  S.  at  N.  Y  

Fifth  Avenue  Bank  

German  Exchange  Bank  

Germania  Bank  

United  States  National  Bank.  . 
Lincoln  National  Bank  

Garfield  National  Bank  

Fifth  National  Bank  

15,134,538  05  139,096,548  03  139,096,548  03  5,134,538  05 

234  PRACTICAL    BANKING, 


CHAPTER  V. 
HOW    OUTSIDE   BANKS    MAKE    CLEAKINGS. 

In  addition  to  the  banks  which  are  members  of  the  Association, 
most  of  the  other  New  York  City  banks  effect  their  exchanges 
through  the  Clearing-house  by  the  agency  of  some  bank  that  is  a 
member.  The  bank  for  which  the  clearing  is  done  is  required  to 
'keep  an  adequate  fund  on  deposit  at  the  clearing  bank,  both  as  a 
compensation  for  the  service  rendered,  and  as  a  guarantee  against  loss. 
The  vouchers  to  be  cleared  are  sent  every  morning  or  oftener  to 
the  clearing  bank,  and  are  classified  and  distributed  among  the  ex- 
changes of  the  latter  as  if  received  by  it  on  deposit.  The  return 
exchange  is  also  received  by  the  clearing  bank  with  its  own 
exchanges,  as  if  payable  by  it,  and  after  being  charged  to  the  bank 
for  which  the  clearing  is  done,  is  transmitted  to  it  as  speedily  as 
possible,  usually  by  messengers  dispatched  by  the  latter  directly 
after  the  clearing.  In  case  of  the  return  of  checks  for  want  of 
funds  or  other  reasons,  the  matter  would  naturally  be  adjusted 
through  the  agency  of  the  clearing  bank.  The  regulations  of  the 
New  York  Clearing-house  provide,  that  "whenever  any  member  of 
the  Association  shall  send  through  the  Clearing-house  the  ex- 
changes of  any  bank  or  banks  in  the  city  or  vicinity,  who  are  not 
members,  such  sending  shall,  ipso  facto,  and  without  other  notice, 
constitute  said  member  the  agent  for  said  bank  or  banks  at  the 
Clearing-house;  and  said  member  shall  be  liable  in  the  premises 
the  same  as  for  its  own  transactions,  and  its  liability  in  all  such, 
cases  shall  continue  until  after  the  completion  of  the  exchanges  of 
the  morning  next  following  the  receipt  of  notice  of  discontinu- 
ance of  such  agency."  A  similar  regulation  is  in  force  at  New 
Orleans. 

At  Boston  the  Clearing-house  embraced,  in  January,  1884,  the 
operations  of  twenty-four  banks  in  the  vicinity  which  were  not 
members ;  at  Pittsburgh  forty-six,  and  at  St.  Louis  four.  At  Boston, 
banks  outside  availing  themselves  of  the  privileges  of  the  Clearing- 
house must  pay  towards  its  expenses  a  sum  to  be  annually  deter- 
mined by  the  Clearing-house  committee.  At  some  of  the  Clearing- 
houses, members  are  not  allowed  to  make  the  exchanges  of  any 
bank  outside.  This  is  the  case  at  Indianapolis,  Lowell  and 
Worcester. 


HOW  OUTSIDE  BANKS  MAKE  CLEARINGS.  235 

A  plan  for  clearing  gold  checks  was  adopted  February  14,  1872, 
and  the  exchange  of  such  checks  commenced  in  March  following 
and  was  continued  until  the  resumption  of  specie  payments,  Janu- 
ary i,  1879.  This  exchange  was  kept  distinct  from  the  exchange  of 
currency  checks,  but  took  place  at  the  same  time  and  place  and 
was  conducted  in  the  same  way.  The  total  of  gold  clearings  dur- 
ing this  period  of  nearly  seven  years  was  $  14,066,282,911.94,  and 
the  balances  paid  in  gold  or  gold  certificates  amounted  to  $2,236,- 
317,602.24,  or  15.9  per  cent,  of  the  clearings. 


PRACTICAL    BANKING. 


CHAPTER    VI. 
PAYMENT    OP    BALANCES. 

The  exchanges  being  completed,  the  next  step  is  the  payment  of 
balances.  At  New  York  the  balances  must  be  paid  by  the  debtor 
banks  to  the  Clearing-house  between  12%  and  ij4  o'clock,  P.  M., 
either  in  actual  coin,  United  States  legal-tender  notes,  or  in  United 
States  or  Clearing-house  certificates.  /  At  1,%  o'clock,  or  as  soon 
thereafter  as  the  accounts  can  be  made  up,  the  creditor  banks  re- 
ceive the  balances  from  the  manager  at  the  same  place,  provided  all 
the  balances  due  from  the  debtor  banks  have  been  paid.  Should 
any  bank  make  default  in  the  payment  of  its  balances  at  the  proper 
hour,  the  amount  of  that  balance  must  be  immediately,  on  requisi- 
tion from  the  manager,  furnished  to  the  Clearing-house  by  the 
several  banks  exchanging  with  the  defaulting  bank  in  proportion 
to  their  respective  balances  against  that  bank  resulting  from  the 
exchanges  of  the  day.  The  amounts  so  furnished  constitute  claims 
against  the  delinquent  bank  only,  the  Clearing-house  being  in  no 
way  responsible.  The  defaulting  bank  is  immediately  suspended 
from  the  Clearing-house.  At  several  of  our  American  Clearing- 
houses the  regulations  provide  that  until  the  settlement  is  completed 
.and  balances  are  paid  the  exchange  shall  be  in  trust  only,  that  the 
vouchers  delivered  at  the  Clearing-house  shall,  until  that  time,  re- 
main the  property  of  the  bank  presenting  them,  and  that  in  case  of 
default  by  any  member  in  paying  its  balances,  such  vouchers  shall 
be  returned  unmutilated  to  the  banks  from  which  they  were  received. 
Some  recent  complications  at  New  York,  arising  from  the  failure  of 
the  Marine  National  Bank  and  of  Grant  and  Ward,  suggest  the 
.advisability  of  some  similar  regulation  there.  It  may  be  stated 
here  that  the  operations  of  the  Clearing-house  have  received  legal 
recognition,  and  a  presentation  of  a  demand  through  the  Clearing- 
house is  a  legal  presentation  by  virtue  of  custom  among  bankers 
.and  merchants. 

Errors  in  the  exchanges,  and  claims  arising  from  the  return  of 
checks,  or  from  any  other  cause,  are  adjusted  directly  between  the 
banks  who  are  parties  to  them,  and  not  through  the  Clearing- 
house, the  association  being  in  no  way  responsible  for  them. 

As  the  banks  severally  pay  their  balances  the  manager  gives  each 
£L  receipt  in  the  following  form : 


PAYMENT  OF   BALANCES.  237 


No.  6.  NEW  YORK  CLEARING-HOUSE, 

January  17,  1884. 

Received  from  the  Bank  of   America  Two  hundred  and  forty  thou- 
sand one  hundred  and  sixty-six  T6^  dollars  in  full  for  balance  due  the 
associated  banks. 
$  240, 166.60.  Manager. 


Sometimes  a  current  ledger  account  is  kept  with  the  Clearing-house, 
charging  it  with  all  money  or  vouchers  sent,  and  crediting  it  with 
all  that  is  returned ;  and  this  receipt  is  charged  as  a  voucher  on 
the  books  of  the  paying  bank.  The  messengers  also  give  to  the 
manager,  in  a  book  with  suitable  forms  prepared  for  that  purpose, 
receipts  for  all  balances  delivered  to  them.  It  is  only  for  a  period 
of  about  one  hour,  while  receiving  and  paying  the  balances,  that 
the  Clearing-house  has  the  custody  of  any  money,  and  during  that 
time  only  as  trustee,  receiving  from  one  to  pay  another. 

Reclamations  for  errors  and  deficiencies,  in  specie  or  United  States 
legal-tender  notes,  received  at  the  Clearing-house,  contained  in  bags 
or  packages,  sealed  and  marked  in  conformity  with  the  rules  of  the 
Clearing-house,  must  be  made  by  one  o'clock  on  the  following  day 
by  the  receiving  bank  against  the  bank  whose  mark  the  sealed 
package  bears.  Notice  of  such  error  must  be  sent  immediately  upon 
discovery,  the  Clearing-house  not  being  responsible  for  the  contents 
of  such  bags  or  packages.  Serious  difficulties  recently  arose  at  New 
York  in  a  matter  of  this  kind,  growing  out  of  the  failure  of  the 
Marine  National  Bank.  On  the  sixth  of  May,  1884,  this  bank  en- 
closed in  the  usual  manner  in  a  sealed  envelope,  marked  with  the 
aggregate  amount,  containing  as  items  constituting  its  claims  upon 
the  First  National  Bank  for  exchange  through  the  Clearing-house, 
three  checks  drawn  by  Ferdinand  Ward  upon  the  First  National 
Bank,  amounting  together  to  $215,000.  As  Ward  at  that  time  had 
in  the  First  National  Bank  only  $2,213.98,  the  latter  refused  the 
checks.  The  Marine  National  Bank  having  in  the  meantime  failed, 
after  paying  its  balance  of  $550,000  at  the  Clearing-house,  the  First 
National  Bank  informed  the  Clearing-house  that  the  checks  were 
not  good  and  claimed  to  be  reimbursed  by  the  associated  banks  or 
the  Clearing-house. 

A  special  committee  of  the  Association,  appointed  to  consider 
the  subject,  decided  against  this  claim,  but  the  affair  resulted  in  the 
adoption,  June  4,  1884,  of  two  amendments  to  the  Constitution  of 
the  Association.  One  of  these  authorizes  the  Clearing-house  com- 
mittee to  examine  any  member  of  the  Association,  and  to  require 
security  for  the  payment  of  its  balances  to  the  Clearing-house;  the 
other  provides  that  in  case  of  refusal  or  inability  of  any  bank  to 
refund  the  amount  of  checks,  drafts,  or  other  items  returned 


238  PRACTICAL    BANKING. 

as  not  good,  the  bank  holding  them  may,  before  one  o'clock,  re- 
port to  the  manager  the  amount  of  the  same,  and  the  manager, 
with  the  approval  of  the  Clearing-house  committee,  is  to  take  from 
the  settling  sheet  of  both  banks  the  amount  of  such  checks  or 
other  items  so  reported.  This  will,  of  course,  increase  any  balance 
due  from  the  presenting  bank,  for  which  all  the  banks  having  bal- 
ances against  it  are  responsible.  The  Clearing-house  has  also  re- 
cently taken  action  on  another  matter  which  has  been  agitated  for 
many  years,  namely,  the  payment  of  interest  on  deposits.  On  the 
recommendation  of  a  committee  appointed  June  4,  and  subsequently 
increased,  the  associated  banks  on  July  29,  1884,  adopted,  subject  to 
the  ratification  of  the  banks  individually,  two  amendments,  one  for- 
bidding any  member  to  pay  interest  on,  or  allow  compensation  for, 
deposits  after  January  i,  1885,  the  other  providing  that  no  checks 
shall  pass  through  the  Clearing-house  except  those  drawn  on  mem- 
bers. Under  this  amendment,  if  it  shall  come  in  force,  banks  out- 
side could  still  clear  on  one  side  through  members — that  is,  the 
checks  and  other  claims  on  the  members — but  the  Clearing-house 
would  be  closed  against  checks  drawn  on  banks  outside,  and  these 
checks  would  be  less  current.  The  outside  banks  may  thus  be  forced 
to  become  members,  and  bear  a  share  of  the  expense  from  which 
they  have  hitherto,  to  the  prejudice  of  the  members,  escaped. 


CLEARING-HOUSE  CERTIFICATES.  239 


CHAPTER  VII. 
CLEARING-HOUSE    CERTIFICATES. 


The  labor,  responsibility  and  risk  attending  the  handling  of  the 
funds  used  in  paying  the  balances  have  been  greatly  abridged  by 
the  use  of  certificates.  These  are  of  three  kinds — Clearing-house  gold 
certificates,  United  States  gold  certificates,  and  United  States  legal- 
tender  certificates.  Clearing-house  gold  certificates  are  issued  in  ac- 
cordance with  a  plan  adopted  in  September,  1853,  against  gold  de- 
posited with  one  of  the  associated  banks,  and  are  of  the  denomina- 
tions of  $1,000,  $5,000  and  $10,000.  They  are  numbered,  regis- 
tered and  countersigned  by  the  proper  officer,  and  are  endorsed 
when  paid  into  the  Clearing-house  by  the  paying  bank,  and  when 
paid  out  are  charged  to  the  receiving  bank,  so  that  they  can  al- 
ways be  traced  by  the  records.  They  are  to  be  used  only  in  settle- 
ments between  the  banks,  and  any  member  of  the  Clearing-house 
which  shall  pay  or  deliver  to  any  party,  not  a  member,  any  such 
certificates,  is  subject  to  a  fine  of  one  hundred  dollars.  The  Bank 
of  America  was  selected  as  the  depository  of  the  associated  banks 
at  the  time  the  Clearing-house  was  established.  The  issue  of  legal- 
tender  notes  by  the  Government  and  the  suspension  of  specie  pay- 
ments reduced  all  ordinary  settlements  to  a  paper  basis,  and  the 
issue  of  Clearing-house  certificates  was  discontinued.  In  1879,  after 
the  resumption  of  specie  payments  and  the  discontinuance  of  fur- 
ther issues  of  gold  certificates  by  the  Government,  the  Clearing- 
house gold  certificates  were  revived,  the  Bank  of  America  being 
again  selected  as  the  depository.  The  first  of  the  new  certificates 
were  issued  October  14,  1879.  The  amount  of  these  certificates  out- 
standing June  30,  1881,  was  $41,858,000,  but  has  since  been  reduced. 
United  States  gold  certificates  were  authorized  by  Act  of  March  3, 
1863,  and  were  used  for  Clearing-house  purposes  soon  after  the 
passage  of  the  National  Bank  Act.  The  first  issue  was  made  No- 
vember 13,  1865.  They  are  issued  against  deposits  of  gold  coin 
and  bullion  made  with  the  Secretary  of  the  Treasury,  in  denomina- 
tions of  twenty  dollars  and  upwards,  corresponding  with  the  de- 
nominations of  United  States  notes.  Further  issues  were  discon- 
tinued December  i,  1878,  but  were  resumed  under  Act  of  July  12, 
1882,  and  they  have,  in  part,  superseded  the  gold  Clearing-house 


240  PRACTICAL   BANKING. 

certificates.  The  United  States  legal-tender  certificates  are  issued 
under  Act  of  June  8,  1872,  against  deposits  of  legal  tenders  made 
with  the  Secretary  of  the  Treasury  by  any  National  banking  asso- 
ciation, in  amounts  of  $10,000  and  upwards,  and  are  of  denomina- 
tions not  less  than  $5,000.  They  are  payable  on  demand  in  United 
States  notes  at  the  place  where  the  deposits  were  made,  and  are 
counted  as  part  of  the  lawful  money  reserve  of  the  National  banks. 
Before  the  resumption  of  specie  payments  they  were  much  used  in 
the  Clearing-house  settlements,  being  frequently  called  Clearing- 
house legal-tender  certificates,* and  the  amount  outstanding  June  30, 
1875,  was  $59,045,000.  The  amount  now  in  use  is  comparatively  in- 
significant, and  they  appear  only  to  a  small  extent  in  the  Clearing- 
house settlements.  The  amounts  and  percentages  paid  in  coin,  cur- 
rency and  certificates  in  the  Clearing-house  settlements  at  New- 
York,  in  1883,  were  as  follows: 

Paid  in  gold  coin $  197,000  oo  ....  .o 

United  States  gold  certificates 564,213,000  oo  ....  36. i 

Clearing-house  gold  certificates 990,925,000  oo  ....  63.3 

United  States  legal-tender  certificates..  1,575,00000  ....  .1 

Legal  tenders  and  change 7,768,09649  ....  .5 

$1,564,678,09649  100.0 

It  will  be  noticed  that  only  one-half  of  one  per  cent,  of  the  bal- 
ances was  paid  in  actual  cash,  and  this  amounts  to  only  one-fiftieth 
of  one  per  cent,  of  the  clearings. 

The  system  of  paying  Clearing-house  balances  wholly  or  partially  in 
certificates  has  been  adopted  at  Boston,  Philadelphia,  Chicago,  Balti- 
more, San  Francisco,  Milwaukee,  and  St.  Paul.  At  Cincinnati,  St. 
Louis,  New  Orleans,  Louisville,  Columbus,  and  Memphis,  the  manager 
of  the  Clearing-house  issues  checks  or  certificates  on  the  debtor  in 
favor  of  the  creditor  banks,  which  must  be  paid  to  the  satisfaction 
of  the  latter.  The  form  used  at  St.  Louts,  which  will  serve  to  il- 
lustrate, is  as  follows: 


$  5,000.  ST.  Louis  CLEARING-HOUSE,  July  18,  1884. 

In  the  settlement  of  the  balances  of  the  Exchanges  made  between  mem- 
bers of  this  Association  to-day,  there  is  due  from  (No.  6)  the  Commer- 
cial Bank,  five  thousand  dollars,  payable  on  demand  to  ( No.  8  )  the  Fifth 
National  Bank. 

Not  transferable,  and  without  recourse  \ 
upon  any  other  member  of  this  Associa-  > 
tion  after  two  o'clock  P.  M.  of  this  day.  '  E-  CHASE,  Manager. 


The  forms  are  different  at  different  Clearing-houses,  but  their 
purport  is  substantially  the  same  in  imposing  upon  some  debtor 
bank  the  duty  of  paying  a  certain  sum  to  some  creditor  bank  in 
settlement  of  the  balances.  In  this  case  the  payment  of  balances, 


CLEARING-HOUSE    CERTIFICATES.  24* 

as  well  as  the  exchange  of  vouchers,  is  a  matter  settled  exclusively 
between  the  banks,  the  Clearing-house  handling  no  money  and  hav- 
ing nothing  to  do  with  the  matter,  except  to  apportion  the  pay- 
ments. 

At  Providence,  Hartford,  New  Haven,  Worcester,  Springfield,, 
Lowell,  Syracuse,  and  to  some  extent  at  Portland,  Maine,  balances 
are  paid  by  checks  on  New  York  or  Boston,  except  where  they  are 
for  small  amounts.  This  plan  is  similar  in  principle  to  that  pre- 
vailing in  the  British  and  other  European  Clearing-houses.  The 
handling  of  cash  is  entirely  dispensed  with,  so  far  as  checks  drawn 
on  some  common  depository  are  used.  The  check  issued  in  these 
cases  would  be  forwarded  by  the  creditor  bank  to  its  New  York 
or  Boston  correspondent,  which  might  also  be  the  depository  of 
the  debtor  bank.  If  not,  the  check  would  be  either  collected  di- 
rectly, or  through  the  New  York  or  Boston  Clearing-house. 


242  PRACTICAL  BANKING 


CHAPTER  VIII. 

«pt 

THE  RECORDS  KEPT  AND  THEIR  USES. 

The  payment  of  the  balances  being  completed  there  remains  the 
duty  of  making  up  a  record  of  the  day's  business  for  preserva- 
tion and  future  reference.  This  is  a  matter  the  importance  of 
which  is  sometimes  overlooked.  However  small  the  transactions  of 
a  Clearing-house  may  be  they  are  destined  to  be  of  value  in  the 
future  as  a  means  of  measuring  growth,  if  nothing  else.  There  are, 
too,  many  problems  of  interest  to  bankers,  on  which  light  would 
be  thrown  by  a  study  and  comparison  of  Clearing-house  data  care- 
fully and  intelligently  prepared.  In  the  interests  of  philosophic  in- 
quiry it  is  worth  while  to  preserve  all  facts  relating  to  operations 
of  so  interesting  a  character  as  those  of  the  Clearing-house.  At 
New  York,  where  the  volume  of  business  justifies  it,  very  full  and 
elaborate  records  are  kept,  showing  every  important  fact  connected 
with  the  business,  and  it  is  possible  to  learn  there  many  particulars 
of  which  no  record  is  preserved  at  other  Clearing-houses.  A  ledger 
is  kept  in  which  are  posted  the  daily  footings  of  the  proof,  "  ex- 
hibiting a  continuous  history  of  the  aggregate  dealings  of  the 
banks."  The  entire  proof,  also,  is  transferred  into  a  book  kept  for 
that  purpose.  "  In  like  manner,  the  daily  debit  and  credit  exchange 
of  each  bank  is  posted  to  its  account,  and  shows  not  only  the  ex- 
tent of  its  business,  but  measurably  its  character  also.  This  is  the 
most  essential  of  all  the  records.  It  is  that  which  brings  the  banks 
separately  within  the  supervision  and  control  of  the  Clearing-house 
— a  necessary  complement  of  the  joint  responsibility  created  by  the 
organization."*  If  the  daily  records  of  its  transactions  show  that 
its  reserves  are  undergoing  constant  depletion  without  any  known 
source  of  replenishment,  its  credit  at  the  Clearing-house  is  affected, 
and  it  may  be  subjected  to  an  examination  by  a  committee  con- 
sisting of  the  Clearing-house  committee  and  a  committee  of  five 
bank  officers,  which  joint  committee  has  power  to  suspend  any 
bank  from  the  privileges  of  the  Clearing-house,  "  in  case  of  ex- 
treme emergency,"  until  the  pleasure  of  the  Association  is  ascer- 
tained. To  effect  a  suspension  a  majority  of  each  committee  must 

*  Gibbons'  Banks  of  Mew  York  and  the  Panic  of  1857. 


THE  RECORDS   KEPT  AND  THEIR  USES.  243 

be  present  and  the  vote  must  be  unanimous.  The  Association 
alone  has  the  power  of  expelling  a  member. 

A  summary  book  is  made  up  from  the  daily  postings,  showing  the 
total  receipts  and  payments  by  each  bank  for  the  week,  and  also 
for  the  month  and  year.  The  adverse  balances  of  one  period  may 
be  compensated  by  the  favorable  balances  of  a  succeeding  period, 
and  thus  the  state  of  the  reserve  of  each  bank  is  followed  up  with 
unfailing  precision.  "If  at  the  end  of  a  month  it  appears  that  a 
bank  has  paid  in  to  the  House  one  million  of  dollars  more 
than  it  has  received,  and  if  it  has  no  foreign  sources  of  replenish- 
ment, the  conclusion  is  that  it  has  supplied  itself  by  purchase.  If 
the  same  result  should  be  shown  at  the  end  of  another  month, 
without  signs  of  recuperation,  and  so  on  continuously,  it  becomes 
evident  that  the  institution  is  carrying  a  forced  average  of  loans,  and 
it  will  receive  a  call  from  the  committee.  .  .  .  But  this  extreme 
case  is  most  unlikely  to  happen.  The  credit  that  every  member 
derives  from  the  Association  is  too  valuable  to  be  cast  off  or 
treated  with  lightness.  The  action  of  the  Association  is  too  im- 
partial and  just  to  give  offence,  or  to  admit  excuse  for  disregard- 
ing its  advice." 

"A  positive  principle,  or  rule  of  financial  government,  has  been 
demonstrated  by  this  action  of  the  Clearing-house  on  the  city 
banks,  that  is,  the  restriction  of  loans  by  the  necessity  of  maintain- 
ing a  certain  average  of  coin  [  or  legal  tenders  ]  from  resources  within 
the  bank.  Borrowing  from  day  to  day  will  no  longer  do.  It  cannot 
be  concealed.  The  records  will  show  conclusively  whether  the  aver- 
age is  kept  up  by  a  healthy  business,  or  by  a  forcing  process."* 

"The  limitation  imposed  does  not  stop  at  the  bank  loans,  but 
passes  through  them  into  the  commercial  system.  The  loans  rest 
on  the  coin  (or  legal  tender)  average,  this  rests  on  the  deposits, 
and  the  deposits  rest  on  the  means  of  trade.  The  Clearing-house 
has  not  created  any  new  dependence  of  this  kind,  but  it  has  brought 
the  facts  into  a  manageable  shape,  and  established  something  like 
an  axiom  in  the  banking  business.  It  is  not  a  mere  arbitrary  re- 
quirement that  a  specific  average  of  coin  (or  legal  tenders)  must 
be  maintained,  but  it  is  the  constitution  of  that  average  as  a  re- 
sult, and  the  control  of  it  by  an  organization  which  permits  no 
escape  and  works  no  injustice— and  what  that  organization  is  for 
the  City  of  New  York,  the  city  is  for  the  country;  a  restrictive 
power  over  the  general  currency  of  trade  must  be  exerted  through 
this  channel  to  its  remotest  sections." 

Weekly  publication  of  bank  statements  had  been  required  by  law 
even  before  the  establishment  of  the  Clearing-house,  but  many  ways 
of  doctoring  such  statements  were  devised,  so  that  the  objects  of 
the  law  were  only  partially  realized.  Each  bank  in  the  Clearing- 

*  Gibbons'  Banks  of  Ntw  York  and  the  Panic  of  1857. 


244  PRACTICAL    BANKING. 

house  is  required  to  furnish  to  the  manager  every  Saturday,  on  or 
before  12  o'clock  M.,  a  statement  showing  the  average  amount  of 
loans  and  discounts,  of  specie,  of  legal-tender  notes,  of  deposits,  and 
of  circulation,  for  the  preceding  week.  These  statements  are  tabu- 
lated by  the  manager  and  given  to  the  public.  They  have  this  ad- 
vantage over  the  statements  made  under  the  law,  that  the  daily 
operations  of  the  Clearing-house  furnish  a  means  of  testing  their 
accuracy.  Deception  may  still  be  practised,  but  it  is  likely  sooner 
to  come  to  light  than  it  would  but  for  the  searching  test  afforded 
by  the  daily  settlements. 

"The  improvement  in  the  character  of  its  loans  is  consequent 
upon  the  fact,  that  if  a  bank  becomes  embarrassed  by  their  impru- 
dent extension,  it  can  get  a  good  class  of  paper  rediscounted,  and 
thus  obtain  immediate  relief;  whereas  if  its  discounted  paper  is  of  a 
low  grade,  or  if  the  assistance  required  is  to  help  the  directors 
only,  and  not  its  dealers  generally,  it  loses  sympathy  and  reputation. 
The  character  of  its  discounted  bills  is,  therefore,  its  sheet  anchor 
in  a  storm.  In  fact,  the  credit  of  the  Clearing-house  Association 
would  itself  be  impaired  if  it  should  allow  one  of  its  members  to 
fail  from  inability  to  convert  good  assets  into  cash  funds."*  One 
of  the  ways  by  which  relief  is  afforded  in  such  cases  is  by  the 
issue  of  Clearing-house  certificates  against  a  deposit  of  securities, 
such  certificates  to  be  available  in  the  settlement  of  balances  at  the 
Clearing-house.  In  the  late  crisis  at  New  York  some  $  25,000,000  of 
such  certificates  were  thus  issued  to  different  banks  against  accepted 
securities,  certificates  in  no  case  being  issued  to  an  amount  exceed- 
ing seventy-five  per  cent,  of  such  securities.  This  measure  afforded 
substantial  relief,  and  the  certificates  were  mostly  withdrawn  within 
sixty  days.  The  same  plan  was  tried  with  good  results  in  1861-2 
and  in  1873. 

Other  records  of  Clearing-house  operations  may  be  made  possessing 
practical  value.  Says  Col.  W.  M.  Grosvenor,  in  a  paper  which  was 
read  at  the  Convention  of  the  American  Bankers'  Association  in 
1882:  "In  the  mere  observation  of  the  course  of  exchanges  in  dif- 
ferent sections  and  at  different  localities,  many  business  men  affirm 
that  they  have  gained  important  advantages.  They  have  been 
warned  in  season,  when  the  business  of  a  distant  city  was  being 
diverted  to  others,  or  depressed  by  social  or  political  influences. 
They  have  been  advised  in  season,  by  gradually  expanding  ex- 
changes, that  industry  in  a  distant  region  was  reviving,  and  prompt 
effort  in  that  direction  has  been  rewarded.  Investors  have  been 
guided  in  the  choice  of  securities  by  evidence  of  rapid  growth  in 
the  business  of  cities.  Lenders  have  been  warned  by  unnatural 
expansion  and  violent  fluctuation  in  the  exchanges  at  a  particular 

*  Gibbons. 


THE  RECORDS   KEPT   AND  THEIR  USES.  245 

city,  that  excessive  speculation  was  approaching  its  climax  there, 
so  that  loans  were  'extra-hazardous.'  Information  of  more  general 
importance  has  repeatedly  been  obtained.  The  inquiry  is  yet  in  its 
infancy,  and  comparatively  little  is  known  of  the  meaning  of  rec- 
ords which,  in  due  time,  will  enable  men  to  note  the  coming  of 
many  financial  storms  as  surely  as  the  march  of  an  area  of  low 
barometer  across  the  country  is  traced  by  the  signal  service." 

At  the  last  meeting  (1884)  of  the  Bankers'  Association,  Mr. 
Comegys,  President  of  the  Philadelphia  National  Bank,  suggested 
that  the  Clearing-house  might  keep  another  record,  with  a  brief 
explanation  of  which  we  shall  close  this  chapter.  The  risks  and 
losses  growing  out  of  the  purchase  of  one-name  paper  are  well 
understood,  especially  among  bankers.  To  lessen  the  risk  thus  in- 
curred, he  proposed  that  a  credit-ledger  should  be  opened  in  the 
Clearing-house  of  any  city,  in  which  should  be  kept  a  record  of 
the  names  of  payers  and  endorsers,  and  dates  of  maturity  of  all 
notes  amounting  to  one  thousand  dollars,  or  more,  held  by  the 
banks,  purchased  of  brokers.  The  reports  of  such  paper,  he  further 
proposed,  should  be  made  to  the  Clearing-house  anonymously,  and 
information  concerning  such  names  should  be  given  only  to  mem- 
bers of  the  Clearing-house.  Large  sums  of  money,  he  declared, 
might  be  saved  to  banks  by  means  of  this  information. 


246  PRACTICAL    BANKING. 


CHAPTER   IX. 
PINES. 


The  minor  delinquencies  of  the  banks  in  their  relations  with  the 
Clearing-house  are  dealt  with  by  means  of  fines.  The  following 
scale  of  fines  at  New  York  will  serve  as  an  illustration : 

First.— All  errors  on  the  Credit  side  of  the  Settling  Clerk's  Statement  (i.e.  in 
the  amount  brought)  whether  of  footing  or  entry,  a"nd  all  errors  causing 
disagreement  between  the  credit  entries,  the  check  tickets,  and  the  ex- 
change slips each  $  3  oo 

Second. — Errors  in  making  the  Debit  (i.  e.  the  amount  received)  entries,  each  $2  co 

Third. — Errors  in  the  Tickets  reported  to  the  Clearing-house,  causing  dis- 
agreement between  the  balances  and  aggregates each  $  2  oo 

Fourth. — Errors  in  footing  the  amount  received $  i  oo 

Fifth. — Disorderly  conduct  of  Clerk  or  Porter,  at  the  Clearing-house ;  or  dis- 
regard of  the  Manager's  instructions each  offence  $  2  oo 

Sixth. — Clerk  or  porter  failing  to  attend  punctually  with  statements  and 

tickets  complete  at  the  morning  exchanges each  $  2  oo 

Seventh. — Debtor  banks,  failing  to  appear  to  pay  their  balances  before  i% 

o'clock  P.  M $  3  oo 

Eighth.— Errors  in  delivery  or  receipt  of  exchanges each$i  oo 

Forty-five  minutes  are  allowed  for  the  proof.  For  all  errors  re- 
maining undiscovered  at  11.15  A.  M.  the  fines  are  doubled,  and  at 
12  M.  quadrupled.  Once  in  each  month  the  manager  reports  to  each 
bank  the  amount  of  fines  against  it  for  the  preceding  calendar  month, 
with  the  total  amount  of  fines  from  all  the  banks  and  the  num- 
ber of  banks  fined.  Clerks  are  required  to  conduct  themselves  in 
a  quiet  and  orderly  manner,  to  be  attentive  to  their  duties,  and  to 
remain  at  their  desks  while  the  proof  is  being  made,  and  until  it 
is  announced.  Loud  conversation,  or  anything  tending  to  create  dis- 
turbance or  confusion,  is  not  permitted.  The  fines,  though  not 
large  considering  the  amounts  involved,  are  sufficient  to  make  it 
an  object  for  banks  to  employ  clerks  who  are  rapid  and  accurate 
in  figures,  though  there  are  very  marked  differences  of  aptness  in. 
this  particular. 


HISTORY  OF  THE  NEW  YORK  CLEARING-HOUSE.  247 


CHAPTER  X. 
HISTORY   OP   THE   NEW   YORK   CLEARING-HOUSE. 

The  first  proposition  for  the  establishment  of  a  Clearing-house  in 
New  York  was  made  by  Albert  Gallatin  in  1841.  To  Mr.  Geo.  D. 
Lyman,  the  first  manager  of  the  New  York  Clearing-house  belongs 
chiefly  the  credit  of  systematizing  its  details  and  planning  its  rec- 
ords in  its  earlier  history.  Mr.  Lyman  thus  concisely  sums  up  the 
economy  of  time  and  labor  effected  by  the  Clearing-house: 

"On  the  day  when  the  Clearing-house  began  business,  about 
twenty-seven  hundred  open,  active  accounts  on  the  ledgers  of  the 
associated  banks  were  balanced — the  most  of  them  for  the  first 
time,*  and  all  of  them  finally.  The  business  which  had  rendered 
necessary  this  large  number  of  accounts  was  thenceforth  accom- 
plished more  quickly,  with  less  annoyance  to  bank  officers,  arid 
with  greater  safety  to  all  concerned.  The  results  may  be  briefly 
enumerated  as  follows : 

"  First. — The  condensation  for  each  bank  of  forty-eight  balances 
into  one,  and  the  settlement  of  that  balance  without  a  movement 
of  specie. 

"  Secondly. — The  avoidance  of  numerous  accounts,  entries  and 
postings. 

"  Thirdly. — Great  saving  of  time  to  the  porters  and  of  risk  in 
making  exchanges  and  settlements  from  bank  to  bank. 

"  Fourthly.— Relief  from  a  vast  amount  of  labor  and  annoyance 
to  which  the  great  army  of  cashiers,  tellers  and  bookkeepers  were 
subjected  under  the  old  system. 

'•  Fifthly. — The  liberation  of  the  associated  banks  from  all  in- 
jurious dependence  on  each  other. 

"Sixthly.— The  absolute  facility  afforded  by  the  books  of  the 
Clearing-house  for  knowing  at  all  times  the  management  and 
standing  of  every  bank  in  the  Association." 

Mr.  Lyman  remained  manager  of  the  Clearing-house  until  1864, 
a  period  of  more  than  ten  years.  On  the  twenty-second  of  August 
in  that  year  he  was  succeeded  by  the  present  manager,  Mr.  William 
A.  Camp,  who  has  brought  the  details  of  the  business  to  a  per- 

*   "  The  practice  of  the  banks  had  been  to  draw    settlement-checks    on    each    other   for  even 
thousands  of  dollars   near  the  balance  due,  and    the   account  was    never   settled  to  a  point." 


:24&  PRACTICAL    BANKING. 

fection  not  previously  attained.  Mr.  Camp  was  born  at  Durham, 
Connecticut,  Sept.  23,  1822,  was  appointed  in  1855  discount  clerk 
in  the  Importers  and  Traders'  Bank  of  New  York  (his  first  bank- 
ing experience),  and  was  made  first  teller  of  the  Artisans'  Bank 
in  1856.  In  June  1857  he  was  made  assistant-manager  of  the 
Clearing-house,  so  that  he  has  now  been  connected  with  the  es- 
tablishment twenty-seven  years,  twenty  years  of  that  period  as  mana- 
ger. To  executive  ability  of  a  high  order,  he  unites  unusual  accu- 
racy and  promptness  in  the  despatch  of  business,  as  well  as  a  wide 
acquaintance,  both  theoretical  and  practical,  with  financial  subjects. 
It  speaks  volumes  for  the  care  and  scrupulous  accuracy  with  which 
the  business  has  been  conducted,  that  in  the  entire  history  of  the 
Clearing-house,  extending  over  nearly  thirty-one  years,  its  trans- 
actions have  always  balanced  to  a  cent.  The  only  instance  on 
record  of  an  error  in  any  statement  emanating  from  it  occurred  a 
few  years  ago  in  the  weekly  bank  statement,  and  this  was  due  to 
an  error  of  one  of  the  clerks  in  transcribing  the  figures.  In  making 
the  entries,  the  officials  at  the  Clearing-house  and  their  subordin- 
ates use  ink  only.  The  clerks  sent  by  the  banks  may  at  their 
option  make  their  entries  in  pencil. 

The  first  day's  clearing  at  New  York,  October  n,  1853,  was  $23,- 
938,182.25.  The  total  of  its  gold  and  currency  clearings  to  Decem- 
ber 31,  1883,  was  $695,304,252,496.30,  and  of  the  balances,  $30,250,- 
.800,308.61.  The  largest  transactions  (clearings  and  balances  com- 
bined) in  any  one  day  were  $295,821,422.37,  February  28,  1881, 
when  the  clearings  amounted  to  $288,555,981.58.  The  largest  ex- 
•change  ever  brought  to  the  Clearing-house  by  any  bank  was  on  the 
same  day,  $31,772,391.45,  brought  by  the  Bank  of  New  York,  its  re- 
turn exchange  being  $31,512,015.47.  The  largest  balance  paid  by 
any  bank  was  $10,585,471.31,  November  17,  1868.  The  smallest  bal- 
ance ever  paid  by  any  bank  was  one  cent,  September  22,  1862.  The 
-smallest  balance  ever  paid  to  a  bank  was  ten  cents,  November  16, 
1863.  No  bank  ever  came  out  exact  without  a  balance  either  way. 
The  largest  amount  ever  cleared  in  one  year  was  in  1881,  $49,376,- 
£82,882.54,  and  the  smallest  in  any  whole  year  was  in  1858,  $5,376,- 
151,036.92.  Formerly  bank  notes  were  included  in  the  clearings, 
though  to  a  less  extent  after  the  establishment  of  the  National 
banking  system  than  before.  The  trouble  of  assorting  the  country 
bank  notes  gave  general  dissatisfaction.  "The  Park  Bank  then  un- 
dertook, for  a  consideration  of  about  five  thousand  dollars  a  year, 
to  assort  the  country  bank  notes  of  all  the  other  banks  in  the  city, 
and  this  arrangement  was  prolonged  for  nearly  two  years,  the  plan 
•of  working  meanwhile  gradually  improving  in  efficiency,  when  it  was 
interrupted  and  superseded  by  the  establishment  of  the  Redemp- 
tion Bureau  in  the  office  of  the  United  States  Treasurer  at  Wash- 
ington, for  the  purpose  of  redeeming  the  notes  of  all  National 


HISTORY  OF  THE  NEW   YORK  CLEARING-HOUSE.  249 

banks."*  Bank  notes  may  now  be  included  in  the  exchanges,  but, 
in  practice,  are  not.  The  paper  exchanged  now  consists  of  checks, 
drafts  and  certified  notes. 

Banks  desiring  to  become  members  of  the  Clearing-house  Asso- 
ciation must  apply  to  the  committee  on  admissions,  who  make  such 
examination  of  the  bank  as  they  deem  necessary.  The  personal 
character  and  standing  of  its  managers  is  also  considered.  The  bank 
may  be  admitted  to  the  Association  by  a  three-fourths  vote  (by 
ballot)  of  the  members  present  at  any  meeting,  on  such  conditions 
as  three-fourths  of  those  present  may  deem  expedient.  The  new 
member  must  assent  to  the  Constitution  and  pay  an  admission  fee, 
varying  from  $1,000,  where  the  capital  does  not  exceed  $500,000, 
up  to  $7,500,  where  the  capital  exceeds  $5,000,000.  Any  member 
increasing  its  capital  must  pay  an  additional  sum  corresponding 
with  these  rates.  A  bank  may  withdraw  from  the  Association  at 
pleasure,  first  paying  due  proportion  of  all  expenses  incurred,  and 
signifying  its  intention  to  withdraw  to  the  Clearing-house  commit- 
tee. The  expense  of  printing  for  the  several  banks  is  apportioned 
equally  among  them.  The  other  expenses  are  met  by  an  assess- 
ment of  $200  on  each  bank,  and  the  balance  necessary  above  that 
amount  pro  rata  according  to  the  average  amount  sent  to  the  Cleau- 
ing-house  for  the  preceding  year.  A  fine  of  three  dollars  is  imposed 
on  any  bank  not  represented  at  roll  call  at  any  duly  called  meet- 
ing without  reasonable  excuse.  Any  member  of  the  Association 
guilty  of  participation  in  any  scheme  for  withdrawing  legal  tenders 
from  use  may  be  suspended  from  the  Clearing-house. 

*  Kinahan  Cornwallis  in  International  Review  for  Sept.-Oct.,  1876. 


250  PRACTICAL    BANKING 


CHAPTER    XI. 
CLEARING-HOUSES    OUTSIDE    OP   NEW   YORK. 

The  Boston  Clearing-house,  like  that  of  New  York,  has  had  but 
two  managers,  Mr.  Henry  B.  Grove,  from  the  organization  of  the 
Clearing-house  in  1855  to  his  death  in  April,  1877,  and  Mr.  Na- 
thaniel G.  Snelling,  the  present  incumbent,  from  that  date  until  the 
present  time.  Mr.  Snelling  was  assistant  manager  from  1861  to 
1877,  and  has  therefore  been  connected  officially  with  the  Clearing- 
house for  twenty-three  years.  The  clerks  and  porters,  as  well  as  the 
manager,  give  bonds.  The  daily  routine  is  substantially  the  same  at 
Boston  as  at  New  York.  The  hour  for  clearing  is  ten  o'clock,  A.  M. 
The  debtor  banks  are  required  to  pay  their  balances  by  12.15  p«  M-» 
and  the  creditor  banks  receive  them  at  i%  o'clock  P.  M.  Thirty 
minutes  are  allowed  for  the  proof  and  for  delivering  check  tickets, 
and  for  each  fifteen  minutes'  detention  beyond  that  time  two  dol- 
lars are  added  to  the  fine  incurred.  About  half  an  hour  is  re- 
quired to  prepare  the  exchanges  for  the  Clearing-house.  The  mes- 
sengers complete  the  delivery  of  the  packages  at  the  Clearing- 
house in  about  five  minutes.  They  receive  the  return  clearings  in 
about  ten  or  fifteen  minutes,  and  are  generally  back  at  their  re- 
spective banks  by  fifteen  or  twenty  minutes  past  ten.  The  paying 
teller  completes  the  examination  of  the  return  exchange  usually  by 
eleven  o'clock,  and  then  delivers  the  checks  and  vouchers  to  the 
bookkeeper,  who  enters  them  on  his  books  in  ink  of  a  different 
color  from  that  used  in  charging  those  paid  over  the  counter. 
Usually  the  bank  sending  paper  to  the  Clearing-house  marks  its 
number  on  the  back  of  each  check  or  voucher  in  blue  ink,  but 
the  practice  is  not  uniform.  Although  the  check  tickets  are  usu- 
ally prepared  at  the  bank  and  delivered  by  the  messengers,  this  is 
not  obligatory.  It  is  sufficient  if  the  check  tickets  are  all  de- 
livered before  half-past  ten  o'clock,  for  failure  to  do  which  a  fine 
of  one  dollar  is  imposed.  No  failure  has  ever  occurred  among  the 
banks  connected  with  the  Boston  Clearing-house,  though  the  Me- 
chanics' Bank  (No.  30)  never  came  in,  and  the  Metropolis  (No. 
38),  discontinued  business  many  years  ago.  Provision  is  made  in 
the  Constitution  for  making  one  of  the  associated  banks  a  de- 
pository of  coin  against  which  certificates  may  be  issued.  But  this 


CLEARING-HOUSES   OUTSIDE  OF   NEW   YORK.  251 

provision  is  at  present  dormant,  United  States  gold  certificates  being 
used  instead.  In  case  of  default  by  any  bank  in  paying  its  balances 
at  the  Clearing-house,  the  Constitution,  in  addition  to  provisions 
similar  to  those  of  the  New  York  Clearing-house,  provides  that 
any  bank  responding  to  the  manager's  requisition  for  the  deficiency 
may  have  its  exchanges  with  the  defaulting  bank  canceled,  and  be 
restored  to  the  position  in  which  it  stood  before  the  exchange  was 
made.  Weekly  statements  are  required  from  the  banks,  as  in  New 
York. 

At  Philadelphia  there  are  two  clearings  daily.  The  first,  and 
principal  clearing  is  at  half-past  eight  o'clock,  A.  M.  The  balances 
of  this  clearing  are  paid  in  legal  tender  notes  or  United  States  cer- 
tificates, between  the  hours  of  eleven  and  twelve  o'clock.  A  second, 
or  "  runners' "  exchange,  is  held  at  half-past  eleven,  for  the  settle- 
ment of  the  items  formerly  taken  to  the  different  banks  by  the 
runners,  namely,  the  notes  and  checks  received  by  the  morning 
mail.  The  balances  of  this  exchange  are  paid  by  due  bill,  which 
goes  through  the  next  morning's  exchanges.  The  clearing  methods 
are  similar  to  those  at  New  York.  Weekly  bank  statements  are 
also  published. 

At  Chicago  the  hour  for  clearing  is  eleven  o'clock  daily.  Bal- 
ances must  be  paid  by  the  debtor  banks  between  the  hours  of 
twelve  and  half-past  twelve,  and  the  creditor  banks  receive  them 
between  half-past  twelve  and  a  quarter  of  one  o'clock.  Balances 
are,  by  the  rules  of  the  Clearing-house,  payable  in  gold  coin,  legal 
tenders,  National  bank  notes,  United  States  and  Clearing-house  cer- 
tificates. It  is  customary,  however,  for  the  banks  to  save  the  hand- 
ling of  actual  cash  to  a  greater  or  less  extent  by  the  following  ex- 
pedient :  A  debtor  bank  sells  to  some  creditor  bank  New  York  or 
Boston  exchange,  and  receives  from  the  latter  a  check  or  order  on 
the  Clearing-house,  the  form  of  which  is  printed  on  green  paper, 
and  is  as  follows : 


No CHICAGO 1884. 

W.  S.  SMITH,  Manager, 

Chicago  Clearing-house. 

Pay or  order 

Dollars, 

and  deduct  from  balance  due  us  this  day. 

Cashier. 


The  debtor  bank  delivers  this  voucher  at  the  Clearing-house  in 
settlement  of  the  amount  which  it  represents,  and  it  is  available  to 
the  Clearing-house  in  settling  with  the  creditor  bank  without  hand- 
ling any  cash.  At  St.  Paul  a  similar  usage  prevails,  the  check  or 
order  on  the  Clearing-house  being  printed  on  light  yellow  paper. 


252  PRACTICAL    BANKING. 

At  Chicago  all  checks  and  vouchers  exchanged  at  the  clearing 
are  held  in  trust  only  by  the  member  receiving  the  same  until  re- 
turned, or  the  amount  thereof  paid.  In  case  of  failure  on  the  part 
of  any  bank  to  pay  its  balances  at  the  proper  hour,  it  is  to  return 
such  checks  or  vouchers,  without  mutilation,  to  the  Clearing-house 
before  one  o'clock  P.  M.,  and  it  is  to  receive  back  the  vouchers  it 
sent.  Elaborate  provisions  are  made  for  the  protection  of  the  asso- 
ciated banks  in  such  cases.  The  work  of  clearing,  in  its  various 
stages,  occupies  about  two  hours.  Thirty  minutes  .are  allowed  for 
the  proof.  The  paper  exchanged  is  stamped  "Paid  through  the  Chi- 
cago Clearing-house  to  "  (name  of  member  clearing  same  to  be  here 
inserted),  with  the  date,  in  lieu  of  written  endorsements,  and  the 
bank  using  such  stamp  thereby  makes  itself  responsible  for  all  items 
so  stamped  by  it,  and  for  all  informalities  of  endorsements  thereon. 
The  business  hours  of  the  different  members  must  be  uniform,  and 
are  regulated  by  the  Association.  Each  member  of  the  Association 
is  required  to  furnish  to  the  manager,  as  often  as  five  times  yearly, 
and  at  such  other  times  as  may  be  required  by  the  Clearing-house 
committee,  a  sworn  statement  of  its  condition,  in  the  form  and 
manner  prescribed  for  the  statements  of  National  banks,  such  state- 
ments to  be  open  to  the  inspection  of  the  members,  but  to  be 
otherwise  confidential.  The  scale  of  fines  shows  some  peculiarities, 
among  which  may  be  mentioned  those  for  being  late  at  the  morn- 
ing exchanges.  For  the  first  five  minutes,  or  part  thereof,  late,  the 
fine  is  $3;  for  the  second  five  minutes,  or  part  thereof,  $10,  and 
for  being  over  ten  minutes  late,  $25.  Creditor  banks  are  also  fined 
$3  in  case  of  failure  to  take  away  their  balances  by  12.45  p-  M-  All 
fines  are  collected  by  the  manager  at  once.  The  manager  may  re- 
quire from  members  the  signatures  of  such  persons  as  are  authorized 
to  receipt  for  balances.  The  expenses  of  the  establishment  are 
about  $8,000  per  annum,  assessed  upon  the  banks  in  a  manner  simi- 
lar to  that  at  New  York. 

At  St.  Louis  the  hour  for  making  the  exchanges  is  ten  o'clock 
A.  M.  Each  clerk  must  report  the  debits  against  his  bank  within 
twelve  minutes  after  commencing;  for  failure  to  do  which  the  bank 
is  fined  $2,  with  two  dollars  more  for  every  five  minutes'  additional 
delay.  The  time  required  for  completing  the  morning  settlement 
varies  from  fifteen  to  thirty  minutes.  At  eleven  o'clock  the  manager 
issues  his  certificates  of  indebtedness  by  the  debtor  on  the  creditor 
members,  the  form  of  which  has  been  already  given,  each  creditor 
bank  receiving,  on  an  average,  two  certificates.  The  payment  of  bal- 
ances, which  are  not  handled  at  all  by  the  Clearing-house,  but  are 
settled  wholly  between  the  banks,  occupies  from  one  to  one  and 
one-half  hours.  As  at  Chicago,  the  exchange  and  delivery  of 
checks  at  the  Clearing-house  is  in  trust  only  until  the  debit  bal- 
ances are  paid,  and  such  checks  must  be  returned  unmutilated  by 


CLEARING-HOUSES  OUTSIDE  OF  NEW   YORK.  253 

any  defaulting  member.  All  checks  sent  to  the  Clearing-house  must, 
in  lieu  of  written  endorsement,  bear  the  impress  of  a  uniform 
stamp,  showing  the  name  and  number  of  the  bank  sending  it,  and 
the  date,  with  the  words,  "St.  Louis  Clearing-house."  The  by-laws 
define  proper  clearing  matter  as  follows  : 

1.  All  checks  or  drafts  upon,  or  certificates  of  deposits,  demand  or 
matured,  of  any  member  of  the  Clearing-house  or  any  bank  clearing 
through  any  member. 

2.  Any    other    matter    specially    agreed    to    by    any    member,    or 
bank  clearing  through   it,  until  notice  is  given  to  the  contrary. 

3.  Mercantile  or  other    paper  payable  at   any    bank    shall   not  be 
cleared  against  such  bank  unless  authorized  by  the  same. 

4.  All  unstamped  checks    will    be   considered   improper   matter  for 
clearing. 

5.  Any  bank  clearing  paper  not  proper,  as  aforesaid,  shall  be  fineid 
for  disregard  of  instructions. 

Clerks  duly  authorized  may  return  at  the  Clearing-house  matter 
not  authorized  according  to  the  foregoing  to  the  clerk  of  the  bank 
clearing  it,  who  must  receive  and  charge  his  bank  with  it  in  his 
debit  list.  The  initiation  fee  is  only  $25,  and  the  expenses,  amount- 
ing to  about  $6,000,  are  paid  by  the  members  in  proportion  \o 
their  clearings.  To  be  eligible  as  members,  banks  must  have  a  paid- 
up  capital  of  $  1 50,000.  Instead  of  a  "  settling  clerk's  statement  "  all 
on  one  blank,  each  clerk  has  two  statements.  One  called  a  "  C*  edit 

List,"   begins  "  St    Louis  Clearing-house .  , 1884, 

from Bank    No ,"  and  contains  the  exchange 

brought  by  the  bank.  It  corresponds  with  the  debit  column  in  the 
"settling  clerk's  statement,"  as  already  given.  The  other  statement 
is  called  the  "  Debit  List,"  and  begins  "  St.  Louis  Clearing-house, 

1884,  on Bank  No " 

It  corresponds  with  the  credit  column  in  the  settling  clerk's  state- 
ment. The  manager  compiles  periodical  statements  showing  the 
condition  of  the  banks  from  returns  made  by  them.  While  tjhe 
method  of  paying  balances  employed  at  St.  Louis  saves  one  hand- 
ling of  the  funds  so  paid,  it  must  usually  happen  that  another 
great  economy  effected  by  the  Clearing-house  is  lost,  namely,  the 
settlement  of  the  whole  debtor  or  creditor  balance  in  one  item. 
It  would  be  a  very  remarkable  circumstance  if  the  balance  due 
from  any  debtor  bank  should  be  exactly  the  same  as  the  balance 
due  to  some  creditor  bank.  Whenever  it  is  otherwise,  the  demand 
due  to  the  one,  or  from  the  other,  must  be  divided  into  two  or 
more  payments.  The  relative  advantage  of  one  or  the  other  method 
of  paying  balances  must,  however,  be  determined  by  the  circum- 
stances of  each  Clearing-house.  What  might  be  most  convenient 
under  certain  conditions,  might  be  quite  inconvenient  or  imprac- 
ticable under  different  conditions.  The  manager  and  a  porter  have 
charge  of  the  Clearing-house. 


254  PRACTICAL    BANKING. 

The  regulations  of  the  San  Francisco  Clearing-house  are  very 
similar  to  those  at  New  York.  As  at  Philadelphia,  there  are  two 
clearings  daily,  these  being  the  only  Clearing-houses  in  the  country 
having  more  than  one.  The  hours  of  clearing  are  for  ordinary 
days  ten  o'clock,  A.  M.,  and  two  o'clock,  p.  M.,  precisely.  At  half- 
past  two  o'clock,  P.  M.,  the  debtor  banks  pay  their  balances  to  the 
Clearing-house,  and  at  three  o'clock,  P.  M.,  the  creditor  banks  re- 
ceive their  balances  at  the  same  place.  On  Saturdays  the  ex- 
changes occur  at  eleven  and  half-past  eleven  o'clock,  the  settle- 
ments being  made  at  twelve.  About  ten  minutes  are  occupied  in 
getting  the  proof,  about  thirty  minutes  in  receiving  debit  balances, 
and  about  twenty  minutes  in  paying  credit  balances.  United  States 
certificates  began  to  be  used  in  paying  balances  March  5,  1883,  and 
Clearing-house  certificates  June  5,  1883.  Formerly  the  gold  bal- 
ances were  paid  in  gold  coin,  the  silver  in  silver  coin,  and  the 
currency  in  currency.  This  was  the  case  before  the  resumption  of 
specie  payments.  There  are  no  fines  or  penalties  other  than  sus- 
pension or  expulsion.  If  a  bank  defaults  in  the  payment  of  its 
balances,  the  amount  of  that  balance  is  furnished  to  the  manager 
in  memorandum  checks  by  the  banks  to  which  the  defaulting  bank 
is  a  debtor,  in  proportion  to  the  amount  due  each,  and  the  claims 
of  the  banks  which  have  balances  against  the  defaulting  bank,  and 
the  claims  of  the  defaulting  bank  against  banks  which  may,  in 
that  exchange,  have  exchanged  with  it,  shall  be  placed  in  precisely 
the  same  position  as  before  the  exchanges  commenced.  New  mem- 
bers must  pay  an  initiation  fee  of  $  500,  as  compared  with  $  200 
for  the  original  members.  To  provide  for  the  annual  expenses,  each 
bank  also  pays  an  annual  subscription  of  $  1 50,  any  balance  required 
being  made  up  by  a  pro  rat  a  assessment  according  to  the  amounts 
cleared  by  each  bank.  The  work  at  the  Clearing-house  is  in  charge 
of  the  manager  and  one  clerk. 

At  Baltimore  the  banks  make  their  exchanges  daily  at  the  Na- 
tional Union  Bank  of  Maryland,  which  is  the  depository  of  the 
associated  banks.  The  hour  for  clearing  is  8.45  o'clock,  A.  M.  The 
balances  are  paid  by  the  debtor  banks  at  ten  o'clock,  either  in 
legal-tender  notes  or  certificates,  and  are  received  by  the  creditor 
banks  at  noon. 

At  New  Orleans  the  hour  for  clearing  is  nine  o'clock,  A.  M.  At 
11.30  o'clock,  A.  M.,  or  as  soon  thereafter  as  the  amounts  can  be 
made  up  and  proved,  the  creditor  banks  receive  from  the  manager 
at  the  Clearing-house  in  settlement  of  their  balances  checks  on 
the  debtor  banks,  which  checks  are  not  transferable,  and  are  \o  be 
in  no  case  sent  through  the  exchanges.  The  liability  of  the  asso- 
ciated banks  on  such  checks  ceases  at  two  o'clock,  p.  M.,  on  the 
day  of  their  issue.  Any  bank  unable  to  pay  its  balances  is  re- 
quired to  notify  the  manager  and  other  members  of  the  Association, 


CLEARING-HOUSES  OUTSIDE  OF  NEW   YORK.  255 

and  if  any  bank  fails  to  respond  to  the  manager's  checks  before 
one  o'clock,  P.  M.,  such  checks  are  to  be  returned  to  the  Clear- 
ing-house. The  manager  at  once  notifies  the  other  associated  banks, 
and  strikes  from  the  lists  the  exchanges  of  the  defaulting  member, 
which  is  required  to  hold  in  trust  for  the  other  banks  the  checks 
received  from  them  until  called  for  by  them.  The  manager  then 
makes  a  supplemental  adjustment  between  the  other  banks,  without 
recalling  the  checks  already  issued  by  him  upon  the  responding 
banks.  He  charges  back  to  them  the  checks  brought  by  them 
against  the  defaulting  bank,  and  credits  back  to  them,  ist,  the 
checks  brought  against  them  by  the  defaulting  bank,  and,  2d,  the 
amount  of  the  manager's  checks  issued  to  them  upon  the  default- 
ing bank.  He  then  issues  supplemental  manager's  checks  for  the 
settlement  of  the  balances  which  result  from  these  debits  and 
credits.  The  defaulting  bank  ceases  to  be  a  member  of  the  Asso- 
ciation, and  can  only  be  readmitted  by  a  three-fourths'  vote  of  the 
Association  as  in  the  case  of  new  members.  Each  member  of  the 
Association  is  required  to  keep  on  hand  in  coin,  United  States  legal- 
tender  and  National  bank  notes  and  sight  exchange  on  New  York, 
twenty-five  per  cent,  of  its  net  liabilities  subject  to  check  as  they 
appear  each  morning  after  the  exchanges,  and  twenty  per  cent,  of 
such  liabilities  in  coin,  legal  tenders,  and  National  bank  notes. 
Every  member  of  the  Association  is  required  to  furnish  to  the 
Association  every  Saturday  morning  a  report  of  its  average  condi- 
tion for  the  week  ending  Friday  morning,  showing,  ist,  specie 
(coin);  2d,  United  States  legal  tenders  and  National  bank  notes; 
3d,  cash  items ;  4th,  sight  exchange  on  New  York ;  5th,  foreign 
exchange ;  6th,  due  from  distant  banks  and  bankers ;  7th,  loans  and 
discounts ;  8th,  other  cash  assets ;  9th,  circulation ;  roth,  deposits 
(net,  after  exchanges);  nth,  due  distant  banks  and  bankers,  sub- 
ject to  check;  I2th,  other  liabilities  to  banks  and  bankers;  I3th, 
other  cash  liabilities.  Members  are  required  to  pay  an  admission 
fee,  and  the  expenses  (except  printing,  which  is  shared  equally)  are 
apportioned  according  to  the  average  amount  of  the  clearings.  No 
exchanges  are  made  with  members  before  a-quarter  to  ten  o'clock, 
A.  M.,  except  through  the  Clearing-house.  The  exchanges  are  de- 
livered at  the  Clearing-house  in  sealed  envelopes.  The  clerks,  as 
well  as  the  manager,  must  give  bonds  with  sufficient  sureties. 
Minute  rules  prescribe  the  manner  in  which  bundles  of  currency 
must  be  assorted,  wrapped  up  and  sealed  for  greater  security  when 
designed  to  be  used  in  paying  balances. 

At  Cincinnati  the  routine  is  substantially  the  same  as  at  St. 
Louis,  the  former  having  served  as  the  model  for  the  St.  Louis, 
Louisville  and  Columbus  Clearing-houses.  At  all  of  these,  except 
St.  Louis  (as  formerly  at  this,  also),  the  official  statements  of  clear- 
ings and  balances  represent  (or  lately  did)  the  total  of  both  sides 


2$6  PRACTICAL  BANKING. 

of  the  Clearing-house  proof,  and  must  be  divided  by  two  to  get 
the  true  clearings.  The  same  was  formerly  the  case  at  Kansas  City, 
Milwaukee  and  St.  Joseph.  The  hour  for  making  the  exchanges  at 
Cincinnati  is  two  o'clock  p.  M.  At  half-past  two  the  manager,  in 
settlement  of  balances,  issues  his  checks  or  warrants  upon  the 
debtor  members  to  the  creditor  members,  which  must  be  promptly 
paid  to  the  satisfaction  of  the  latter.  If  payment  is  not  made  be- 
fore four  o'clock  on  the  same  day  the  Clearing-house  must  be  no- 
tified immediately,  otherwise  the  other  members  are  free  from  re- 
sponsibility on  such  checks.  In  case  of  default  the  other  members 
must  make  up  the  deficiency  in  proportion  to  the  checks  they 
have  cleared  on  the  defaulting  member  on  that  day,  and  the  latter 
is  required  to  return  the  checks  it  has  received  unmutilated,  and 
in  case  it  refuses  or  cancels  such  checks,  the  same  are  treated  as 
if  returned. 

At  Pittsburgh  the  hour  for  clearing  is  nine  .o'clock  A.  M.,  and  the 
average  time  occupied  is  twelve  minutes.  The  checks  to  be  ex- 
changed are  put  up  in  large,  unsealed  envelopes.  The  debtor  banks 
pay  their  balances  in  cash,  inclosed  in  sealed  envelopes,  between 
10^  and  ti  o'clock  A.  M.,  and  the  creditor  banks  receive  them  be- 
tween 1 1  and  1 1  y*  o'clock  A.  M.,  a  receipt  being  given  in  each  case. 
All  checks  sent  to  the  Clearing-house  are  marked  with  the  stamp 
of  the  bank  sending  them.  The  manager  compiles  periodical  state- 
ments showing  the  condition  of  the  associated  banks  and  of  the 
banks  which  clear  through  them. 

At  Providence,  where  there  is  no  regularly  organized  Clearing- 
house, nineteen  banks  clear  through  the  Merchants'  National  Bank, 
and  fifteen  through  the  National  Bank  of  North  America.  The 
routine,  as  stated  by  Mr.  John  W.  Vernon,  Cashier  of  the  Mer- 
chants' National  Bank,  is  as  follows :  Each  bank,  instead  of  assort- 
ing the  checks  and  other  clearing  matter  it  holds,  and  depositing 
the  packages  made  up  against  every  other  bank,  deposits  its  ex- 
change in  bulk  with  its  clearing  bank,  and  the  latter  assorts  the 
checks  and  notes,  making  up  new  packages  against  each  bank. 
When  the  two  clearing  banks  have  finished  assorting  the  checks 
and  other  items  and  making  up  the  packages,  they  exchange  with 
each  other,  settling  the  balance  in  New  York  or  Boston  funds. 
The  time  required  for  assorting  and  exchanging  the  checks  and 
notes  is  such  that,  although  the  exchange  is  to  be  deposited  at  10% 
o'clock  A.  M.,  the  clearing  banks  are  not  ready  to  settle  balances 
until  about  one  o'clock.  Between  one  o'clock  and  three  P.  M.  the 
clearing  banks  pay  the  creditor  banks,  and  are  paid  by  the  debtor 
banks  in  cashiers'  checks  on  New  York  or  Boston  banks,  at  the 
option  of  the  payee.  The  banks  clearing  through  the  National 
Bank  of  North  America  stamp  all  the  checks  deposited  by  them 
with  a  circle  containing  the  clearing  number  of  the  bank.  Each 


CLEARING-HOUSES  OUTSIDE  OF  NEW  YORK.  257 

bank  clearing  through  the  Merchants'  National  Bank  stamps  the 
checks  it  deposits  with  a  triangle  containing  its  clearing  number. 
National  bank  notes  as  well  as  checks  are  included  in  the  ex- 
changes. 

At. Milwaukee  the  hour  for  clearing  is  10^  o'clock  A.  M.  The 
various  stages  of  the  work  occupy  about  an  hour.  Debtor  banks 
pay  their  balances  to  the  Clearing-house  at  two  o'clock  p.  M.,  either 
in  lawful  money,  National  bank  notes,  or  such  Clearing-house  cer- 
tificates as  may  be  agreed  on  from  time  to  time.  At  2X  o'clock 
p.  M.  the  creditor  banks  receive  their  balances.  In  case  a  bank  de- 
faults in  the  payment  of  its  balances  the  other  banks  are  to  make 
up  the  deficiency  on  the  manager's  requisition  in  proportion  to- 
their  balances  against  the  defaulting  member,  and  until  the  settle- 
ment is  completed  the  exchange  is  in  trust  only,  and  the  vouchers 
remain  the  property  of  the  members  presenting  them  and  are  to 
be  returned  if  required.  Checks  not  good  are  to  be  returned  before 
12%  o'clock  to  the  member  sending  the  same,  which  is  to  reim- 
burse the  holder  by  one  o'clock.  The  expenses  (about  $850)  are 
borne  by  assessment  to  be  fixed  by  the  Clearing-house  commit- 
tee, and  to  be  paid  quarterly  in  advance.  The  members  are  re- 
quired to  keep  uniform  hours,  and  are  not  allowed  to  receive  on 
deposit  checks  upon  any  banks  or  bankers  in  Milwaukee  which  are 
not  members,  unless  such  banks  or  bankers  clear  through  some 
member.  The  banks  stamp  checks  sent  to  the  clearing-house.  Any 
member  may  be  subjected  to  examination,  or  required  to  furnish 
security,  upon  representation  that  its  capital  is  seriously  impaired- 

At  Kansas  City  the  hour  for  clearing  is  12.30  o'clock  p.  M.,  and  the 
manager's  certificates  are  issued  in  settlement  of  balances  as  soon 
as  the  proof  is  made.  They  are,  in  form,  identical  with  that  used 
at  St.  Louis,  except  that  recourse  may  be  had  on  the  other  mem- 
bers up  to  2*4  instead  of  2  p.  M.  The  Constitution  is  almost  word 
for  word  identical  with  that  of  St.  Louis,  and  checks  cleared  are 
stamped  in  the  same  manner.  The  hours  of  the  members  are  to* 
be  uniform,  as  regulated  by  unanimous  vote.  Proper  matter  for 
clearing,  according  to  the  by-laws,  consists  of  checks,  drafts,  certifi- 
cates of  deposit,  demand  or  matured,  and  any  other  matter  specially 
agreed  upon,  and  any  bank  clearing  paper  not  proper  is  subject  to- 
a  fine.  The  manager  makes  monthly  or  quarterly  statements,  show- 
ing the  clearings  and  balances  of  each  member  for  the  month  or 
quarter,  the  amount  of  fines  imposed  upon  each  member,  and  the 
causes  thereof.  Only  National  and  State  banks  having  a  capital  of 
$50,000  or  more  are  eligible  as  members. 

The  Louisville  Clearing-house  is  modeled  mainly  after  that  of 
Cincinnati.  Checks  only  are  cleared;  balances  are  settled  by  mana- 
ger's check,  which  must  be  collected  on  the  same  day,  or  the  holder 
loses  recourse. 


258  PRACTICAL    BANKING. 

The  Detroit  Clearing-house  is  conducted  on  principles  similar  to 
those  of  the  Chicago  Association.  The  clerks,  as  well  as  the  mana- 
ger, furnish  bonds  with  sufficient  sureties.  The  hour  for  clearing  is 
12.15  o'clock  P.  M.  A  fine  of  one  dollar  per  minute  is  imposed 
for  tardiness,  and  the  clearings  are  in  no  case  delayed  more  than 
five  minutes  by  the  absence  of  a  member.  Fifteen  minutes  are  al- 
lowed for  the  proof,  but  the  average  time  occupied  is  only  ten 
minutes.  Fines  are  doubled  in  thirty  minutes,  and  quadrupled  in 
one  hour.  The  debtor  members  pay  their  balances  to  the  manager 
between  i  and  1.30  p.  M.  in  coin,  legal  tenders,  National  bank  notes, 
Clearing-house  certificates  provided  for  by  the  rules  of  the  Associ- 
ation, or  New  York  exchange.  At  last  accounts  the  practice,  since 
the  Association  was  formed,  has  been  to  pay  balances  in  New  York 
exchange  only.  At  1.30  p.  M.  the  creditor  banks  receive  their  bal- 
ances. The  exchange  is  in  trust,  and  vouchers  remain  the  property 
of  the  member  presenting  them  until  balances  are  paid,  and  in 
case  of  default  must  be  returned  to  the  Clearing-house  unmutilated 
by  1.30  P.  M.  The  defaulting  bank  is  also  entitled  to  receive  back 
the  vouchers  it  has  presented,  and  the  exchanges  with  it  are  can- 
celled. If  the  New  York  exchange  given  in  settlement  of  balances 
is  dishonored,  the  deficiency  is  assessed  upon  the  banks  having 
debit  balances  against  the  defaulting  member  in  proportion  to  such 
balances.  To  provide  for  expenses  the  members  each  pay  $50,  and 
an  equal  share  to  the  cost  of  printing.  All  beyond  this  is  provided 
by  an  assessment  on  the  banks  in  proportion  to  their  exchanges 
sent  to  the  Clearing-house.  The  paper  cleared  consists  of  checks, 
drafts  and  certified  paper.  Some  of  the  members  affix  some  distin- 
guishing mark  to  paper  cleared,  but  this  is  not  required  by  the 
rules  of  the  Association. 

At  Cleveland  the  clearings  are  made  at  one  o'clock  P.  M.  Bal- 
ances of  more  than  $  1,000  are  settled  by  New  York  exchange. 
When  balances  are  under  $1,000,  a  balance  check  is  given  which  is 
put  through  the  clearings  of  the  next  day.  Consequently,  no  cash 
is  handled  in  paying  balances.  Checks  cleared  are  marked  with  a 
Clearing-house  stamp. 

At  St.  Paul  the  regulations  are  modeled  after  those  at  Chicago 
and  Milwaukee.  The  clearings  are  made  at  10.30  o'clock,  A.  M.,  and 
the  average  time  occupied  is  seven  minutes.  Checks  only  are 
cleared.  A  clerk  of  the  First  National  Bamk  of  St  Paul,  where 
the  clearings  take  place,  acts  as  manager.  The  "paid  "  stamp  of  the 
sending  bank  is  the  only  distinguishing  mark  affixed  to  checks  pass- 
ing through  the  Clearing-house.  Balances  are  payable  in  coin,  Na- 
tional bank  notes,  legal  tenders,  and  gold  or  silver  certificates.  No 
silver  dollars  are  ever  offered  by  mutual  understanding. 

At  Indianapolis  the  manager  receives  at  the  room  of  the  Asso- 
ciation from  members,  between  12  o'clock  noon  and  12^  *•  M., 


CLEARING-HOUSES  OUTSIDE  OF  NEW  YORK.  ,759 

the  checks,  drafts  and  notes  to  be  exchanged,  and  immediately 
afterwards  collects  from  or  pays  to  each  bank  at  its  place  of  busi- 
ness the  balances  resulting  from  such  exchange.  No  member  is 
allowed  to  receive  in  payment  a  check  on  any  Indianapolis  bank 
not  a  member,  and  no  paper  payable  at  any  bank  not  a  member 
is  allowed  to  pass  through  the  Clearing-house.  All  checks  received 
by  members  after  one  o'clock  must  be  certified.  All  paper  cleared 
must  bear  the  endorsement  of  the  sending  bank,  either  in  writing 
or  by  stamp,  as  an  acknowledgment  of  payment  and  not  as  a 
guarantee,  except  as  to  the  genuineness  of  other  endorsements.  The 
maker  of  a  check  dishonored  for  want  of  funds  is  discredited,  the 
members  are  all  notified,  and  no  uncertified  check  of  such  a  person 
is  allowed  to  pass  through  the  Clearing-house  until  his  credit  is 
restored  by  vote  of  the  Association.  All  notes  ahd  acceptances 
must  be  certified  before  passing  through  the  Clearing-house.  The 
manager  takes  up  the  checks  delivered  to  and  by  any  defaulting 
member,  and  returns  them.  Expenses,  except  as  provided  for  by 
fines,  are  paid  by  the  banks  in  proportion  to  their  capital  and  de- 
posits. The  manager  is  to  be  a  notary  and  has  the  privilege  of 
protesting  such  paper  as  the  members  have  for  protest,  his  fees 
being  his  only  compensation. 

At  Hartford  the  business  of  clearing  is  done  by  the  members  in 
turn,  each  for  one  month  at  a  time,  some  officer  of  the  clearing 
bank  being  manager.  The  hour  for  clearing  is  10  o'clock  and  5 
minutes,  and  the  time  occupied  averages  fifteen  minutes.  The  debtor 
banks  pay  their  balances  to  the  Clearing-house  at  or  before  n)4, 
A.  M.,  in  checks  on  New  York,  except  balances  of  less  than  $  100, 
which  may  be  paid  in  currency.  The  creditor  banks  receive  their 
balances  at  12  M.  The  matter  cleared  includes  notes,  drafts  and 
checks,  also  bank  notes  of  the  members  to  a  very  limited  extent. 
All  paper  cleared  must  bear  the  written  or  stamped  endorsement 
of  the  bank  sending  it.  In  case  of  default  the  other  banks  make 
up  the  deficiency  as  at  New  York  and  Boston.  All  checks  not 
good  must  be  returned  to  the  sending  bank  by  12  o'clock  noon. 

At  Minneapolis  the  clearings  occur  at  eleven  o'clock  A.  M.  The 
constitution  is  not  printed,  but  the  routine  appears  to  be  in  general 
similar  to  that  at  New  York. 

At  New  Haven,  as  at  Hartford,  the  banks  take  turns,  each  bank 
acting  as  the  Clearing-house  for  three  months.  The  exchanges  are 
made  at  9.15  A.  M.,  and  include  checks,  acceptances,  notes  certified 
the  day  before,  and  in  fact  everything  in  the  form  of  an  order  on 
any  member.  Balances  are  to  be  paid  by  noon  in  drafts  on  New 
York. 

At  Memphis  the  exchanges  occur  at  nine  o'clock  A.  M.,  and  the 
time  consumed  by  the  manager  in  the  adjustment  of  balances  is 
about  thirty  minutes.  In  settlement  of  balances  the  manager  draws 


26o  PRACTICAL    BANKING. 

tiis  check  on    the    debtor  in  favor  of  the   creditor  members   in   the 
following  form  : 


MEMPHIS  CLEARING-HOUSE, 

MEMPHIS,  TENN 1884. 

BANK. 

Pay  to  G.  in  settlement  of  balances  this  morning   Six   thousand 
five  hundred  and  fifty  •$&  dollars. 
$6,550^-  Adjuster. 


Instead  of  writing  the  name  of  the  payee  in  full,  the  initial  letter 
or  letters  simply  are  used.  The  amount  of  checks  brought  by  each 
bank  is  entered  on  a  credit  slip,  and  the  amount  taken  away  on  a 
debit  slip.  This  latter  also  contains  additional  rulings  to  show  the 
balance  due  to  or  from  the  bank,  and  against  the  initials  of  each 
bank  is  written  the  amount  of  checks  drawn  upon  it  or  in  its  favor 
to  settle  this,  balance.  Balances  must  be  settled  in  current  funds. 
Checks  only  are  cleared,  and  they  are  delivered  in  sealed  envelopes 
designated  on  the  outside  as  follows. 


MEMPHIS  CLEARING-HOUSE, 

July  i,  1884. 
U.     $10,000  from  Commerce. 


That  is  Union  and  Planters'  Bank  $  10,000,  from  the  Bank  of 
Commerce. 

At  Peoria  the  clearings  are  made  at  11.30  o'clock  A.  M.,  and 
occupy  about  half  an  hour.  The  clearing  matter  consists  of  checks. 
Members  are  to  report  upon  balances  resulting  from  the  exchanges 
before  one  o'clock,  after  which  hour  the  balance  becomes  the  debt 
of  the  bank.  Balances  must  be  paid  by  the  debtor  banks  at  the 
counters  of  the  creditor  banks  before  three  o'clock,  in  currency, 
unless  arrangements  have  been  made  before  that  hour  for  payment 
in  exchange  on  other  points.  Checks  not  good  must  be  returned 
before  .  1.30  P.  M. 

At  Portland  the  six  National  banks,  without  being  formally  or- 
ganized as  a  Clearing-house,  settle  daily  at  ten  o'clock  A.  M.  The 
time  occupied  is  about  fifteen  minutes.  Portland  checks  only  are 
included  in  the  clearing.  Balances  are  paid  in  legal-tender  notes, 
or  checks  on  Boston  or  New  York. 

The  Worcester  and  Lowell  Clearing-houses  are  organized  on  the 
same  plan.  Each  bank  belonging  to  the  Association  is  required  to 
make  a  deposit  fixed  by  vote  of  the  Association  with  the  Clearing- 
house Committee  as  its  proportion  of  a  clearing  fund.  This  fund 
is  deposited  with  one  of  the  banks  selected  as  the  clearing  bank,. 


CLEARING-HOUSES  OUTSIDE  OF  NEW  YORK.  261 

free  of  interest,  as  a  compensation  for  services  and  expenses.  The 
clearing  bank  is  changed  each  year  at  Lowell.  The  cashier  of  the 
clearing  bank  is,  ex  officto,  the  manager  of  the  Clearing-house.  No 
bank  is  allowed  to  make  the  clearings  of  a  bank  that  is  not  a 
member.  At  Worcester  the  hour  for  making  the  exchanges  is  12 
o'clock  noon,  and  the  time  occupied  is  about  fifteen  minutes.  At 
Lowell  the  hour  of  clearing  is  eleven  o'clock,  and  the  time  occu- 
pied is  from  seven  to  ten  minutes.  The  clearing  matter  of  both 
consists  of  checks,  drafts  and  notes.  At  Worcester  paper  cleared 
is  marked  as  follows :  "  Pay  only  through  Worcester  Clearing-house 

to "  At  Lowell  no  distinguishing  mark  is  affixed.  At  the 

latter  balances  are  paid  by  drafts  on  New  York  or  Boston ;  at 
Worcester  by  checks  on  Boston. 

At  Springfield  the  exchanges  occur  at  eleven  o'clock  at  the 
Chicopee  National  Bank,  and  occupy  about  twenty  minutes.  One 
clerk  for  each  bank  performs  the  duties  of  messenger  and  settling 
clerk.  All  kinds  of  paper  are  cleared,  each  item  being  stamped 
with  the  stamp  of  the  sending  bank.  Balances  of  less  than  $  200 
are  paid  in  currency;  if  more  than  that  by  New  York  or  Boston 
drafts. 

At  Columbus,  Ohio,  the  representatives  of  the  banks  clear  at  the 
Board  of  Trade  Rooms  in  City  Hall  at  two  o'clock  P.  M.  The  ex- 
changes occupy  ten  minutes,  the  adjustments  twenty.  Clearing 
matter  consists  of  checks  to  which  no  distinguishing  mark  is  affixed. 
Balances  are  paid  by  manager's  checks  on  the  debtor  banks. 

At  Norfolk  the  banks  select  one  of  their  number  to  be  the  Clear- 
ing-bank for  one  year,  and  the  cashier  of  that  bank  is  ex  officio 
manager  of  the  Clearing-house.  The  hour  for  making  the  exchanges 
is  eleven  o'clock  precisely.  At  12%  o'clock  the  debtor  banks  pay 
their  balances  at  the  Clearing-house  in  currency,  and  the  creditor 
banks  receive  their  balances  at  one  o'clock.  Checks  not  good  must 
be  returned  by  12  M.  to  the  bank  sending  them,  and  must  be 
satisfied  by  2.30  p.  M.  All  checks  presented  in  payment  of  notes 
and  drafts  (except  when  presented  by  the  runner)  must  be  certi- 
fied by  the  bank  on  which  they  are  drawn.  Although  the  rules 
require  the  payment  of  balances  in  currency  they  are,  as  a  matter 
of  accommodation  between  the  banks  when  exchange  is  plentiful, 
often  paid  by  checks  on  New  York,  Philadelphia,  or  Baltimore. 

At  Syracuse  the  exchanges  take  place  at  10.20  A.  M.,  and  occupy 
five  minutes,  the  paper  cleared  being  checks,  certified  notes  and  ac- 
cepted drafts.  No  distinguishing  mark  is  affixed  to  paper  cleared. 
Balances  are  paid  as  convenient  within  two  hours  following  the 
clearing  in  drafts  on  New  York. 

Notwithstanding  the  space  given  to  the  foregoing  particulars  in 
relation  to  the  various  Clearing-houses  in  the  United  States,  many 
matters  of  interest  have  been  necessarily  omitted,  while  others  of 


262  PRACTICAL   BANKING. 

importance,  familiar  to  those  connected  with  Clearing-house  busi- 
ness, may  have  been  overlooked.  In  the  collection  of  such  a  va- 
riety of  data  from  so  many  different  sources,  errors,  both  of  omis- 
sion and  commission,  are  liable  to  occur.  Enough  has,  however, 
been  brought  together  to  furnish  material  for  suggestive  compari- 
sons as  to  the  methods  in  use  at  the  various  Clearing-houses. 
When  all  the  Clearing-houses,  however  unimportant  their  operations 
may  seem,  shall  preserve  full  and  accurate  records  of  their  busi- 
ness in  its  various  details,  such  comparisons  will  shed  increased 
light  upon  the  movements  of  our  internal  commerce,  and,  still  bet- 
ter, repay  careful  study. 


FOREIGN    CLEARING-HOUSES.  263 


CHAPTER    XII. 
POEEIGN    CLEARING-HOUSES. 

Of  foreign  Clearing-houses,  by  far  the  most  important  is  that  of 
London,  embracing  twenty-seven  banks,  including  the  Bank  of  Eng- 
land, which  only  became  a  member  about  twenty  years  ago,  and 
clears  only  on  one  side,  that  is,  its  charges  on  other  banks.  These, 
being  obliged  as  members  of  the  Clearing-house  to  keep  an  ac- 
count with  the  Bank  of  England,  pay  in  their  charges  against  it 
to  the  credit  of  their  account.  A  considerable  number  of  London 
banks  in  high  credit  have  so  far  been  refused  the  privilege  of  mem- 
bership in  the  Clearing-house.  Indeed  so  exclusive  was  it  formerly 
that  until  1854  the  joint-stock  banks  were  refused  admission.  The 
West  End  and  Scotch  banks  and  others  not  yet  admitted,  clear 
through  members. 

The  number  of  daily  clearings  at   London  is  three,  as  follows: 
Ordinary  Days. 

"Morning  clearing  to  open  at  10.30.  Drafts,  &c.,  to  be  received 
not  later  than  11.  Morning  clearing  must  be  closed  by  12. 

"Country  clearing  to  open  at  12.  Drafts,  including  returns,  to 
be  received  not  later  than  12.30.  Country  clearing  must  be  closed 
by  2.15. 

"  Afternoon  clearing  to  open  at  2.30.  Drafts,  &c.,  to  be  received 
not  later  than  4.  Returns  to  be  received  not  later  than  5,  except- 
ing on  settling  days,  when  the  last  delivery  shall  be  at  4.15,  and 
returns  at  5.15." 

Fourths  of  the  Month. 

"  Morning  clearing  to  open  at  9.  Drafts,  &c.,  to  be  received  not 
later  than  10.  Morning  clearing  must  be  closed  by  12." 

Country  clearing  takes  place  as  on  ordinary  days,  and  afternoon 
clearing  as  on  settling  days,  except  when  the  fourth  of  the  month 
occurs  on  Saturday,  in  which  case  the  hours  are  as  on  ordinary 
days. 

Saturdays  {not  being  Fourths'). 

"Morning  clearing  to  open  at  9,  Drafts,  &c.,  to  be  received  not 
later  than  10.  Morning  clearing  must  be  closed  by  n. 

"Country  clearing  to  open  at  11.  Drafts,  including  returns  to  be 
received  not  later  than  11.30.  Country  clearing  must  be  closed  by  1.15. 


-264  PRACTICAL   BANKING. 

"Afternoon  clearing  to  open  at  1.30.  Drafts,  &c.,  to  be  received 
not  later  than  3.  Returns  to  be  received  not  later  than  4." 

In  explanation  of  certain  terms  used  at  the  London  Clearing- 
house it  may  be  stated  that  an  "article"  is  a  bill,  "or  check  or 
dividend  warrant,  or  banker's  payment  slip,  or  memorandum  for 
country  notes,  or  indeed  any  article  that  is  paid  into  the  clearing 
for  settlement  there." 

"A  'charge'  is  a  batch  of  articles  (i.e.,  bills,  checks,  bankers'  pay- 
ments, &c.)  sent  into  the  Clearing-house  by  one  banker  to  be 
charged  by  him  against  another. 

"  '  Returns '  are  any  articles  which  may  be  returned  into  the  Clear- 
ing-house unpaid,  from  want  of  funds,  irregularity  •  of  endorsement, 
no  advice,  or  from  any  other  cause." 

The  officer  having  charge  of  the  clearing  is  called  an  inspector, 
and  not  a  manager,  as  in  this  country.  The  London  Clearing-house 
has  two  inspectors.  Instead  of  blanks,  such  as  are  used  at  Ameri- 
can Clearing-houses,  books  are  used.  The  checks  and  bills  to  be 
presented  by  any  one  clearing  banker  upon  any  other  are  entered 
at  home  in  the  "Out-clearing  book."  There  is  also  the  "In-clearing 
book,"  in  which  are  entered  the  amounts  of  the  checks  received  in 
the  exchange;  the  Out  returns,  the  In  returns,  the  Clearing  Bal- 
ance Book,  the  Clearing  Difference  Book,  &c. 

The  London  Clearing-house  is  a  plain  oblong  room  with  rows  of 
•desks  in  compartments  round  three  sides  and  down  the  middle. 
A  small  office  for  the  two  inspectors  stands  at  one  end.  Each 
bank  sends  as  many  clerks  to  the  house  as  may  be  requisite  for 
the  rapid  completion  of  the  work,  some  of  the  banks  having  as 
many  as  six  clerks.  The  mode  of  conducting  the  business,  as  de- 
scribed in  the  last  edition  of  Gilbart  on  Banking,  is  substantially 
as  follows : 

The  matter  cleared  at  the  morning  clearing  consists,  as  a  rule, 
-of  bills  and  marked  checks.  These  bills  are  bills  which  have 
been  discounted  by  the  bank  or  held  for  collection  on  account 
of  customers.  During  the  afternoon  of  the  day  before  they  fall 
due,  they  are  passed  from  the  bill  department  into  the  clearing  de- 
partment, so  as  to  let  the  clearing  clerks  get  an  early  start  next 
morning.  On  the  morning  of  the  day  on  which  they  mature,  the 
clearing  clerks  sort  them  into  various  packages,  one  for  each  of  the 
other  twenty-five  (or  if  the  Bank  of  England  twenty-six)  clearing 
banks.  Thus  those  which  fall  due  at  the  London  and  Westminster 
Bank  are  sorted  into  one  parcel,  and  the  same  in  other  cases.  The 
amounts  only  are  then  entered  in  the  spaces  left  under  the  respec- 
tive headings  of  the  other  banks  in  the  Morning  Bill  Book.  The 
clearing  clerks  then  sum  up  the  entries  in  this  book,  and  check 
the  aggregate  of  the  various  totals  with  the  sum  supplied  to 
them  on  a  memorandum  by  the  bill  department  of  the  bank. 


FOREIGN  CLEARING-HOUSES.  265 

If  right,  their  clearing  work  is  checked  so  far,  and  they  then 
transfer  the  various  totals  into  the  Out-clearing  Book.  Having  done 
this  they  next  proceed  to  deal  with  the  "  marked  checks."  These  are 
checks  which  have  been  paid  in  by  customers  on  the  afternoon  of 
the  day  before,  too  late  for  the  day's  clearing.  Every  afternoon 
each  bank  sends  these  checks  out  to  the  other  banks  upon  which 
they  are  drawn  to  be  marked  for  payment.  This  marking  consists 
of  the  initials  of  one  of  the  cashiers  put  upon  the  checks  as  an 
acknowledgment  that  they  are  all  right  and  will  be  duly  paid  in 
the  clearing  next  morning.  The  banks  send  out  these  checks  to 
be  marked  chiefly  for  the  convenience  of  their  customers,  but 
partly  for  their  own  protection  in  case  a  cashier  might  pay  against 
an  uncleared  check  which  might  afterwards  prove  to  be  bad.  If  a 
banker  chose  not  to  send  out  such  checks  for  marking,  no  ques- 
tion could  be  raised  by  his  customer  as  to  want  of  due  presentation, 
because  it  is  distinctly  stated  on  the  pay-in  slips  with  which  each 
customer  is  supplied,  or  the  customer  is  acquainted  in  some  other 
form,  that  checks  not  paid  in  by  half-past  three  may  not  be  cleared 
the  same  day.  These  marked  checks  are  sent  to  the  Clearing-house 
the  first  thing  in  the  morning  along  with  the  bills,  and  the  two  to- 
gether form  what  is  termed  the  "  first  charge."  Some  of  the  banks 
try,  and  some  manage,  to  get  the  remittances  received  in  their 
morning  letters  into  their  first  charge ;  but  as  the  morning  clearing 
closes  for  delivery  at  eleven  o'clock,  none  but  those  bankers  who 
begin  business  very  early  can  put  through  so  large  an  amount  of 
work  with  any  degree  of  satisfaction  in  time  for  the  morning 
clearing. 

Although  the  afternoon  town  clearing  nominally  begins  at  2.30 
P.  M.,  and  closes  for  delivery  at  4  P.  M.,  the  Clearing-house  clock 
is  always  kept  five  minutes  behind  Greenwich  time,  so  that  the 
representatives  of  the  various  banks  have  always  five  minutes  grace 
allowed  them. 

To  the  afternoon  clearing,  which  is  the  heaviest  in  the  day,  the 
banks,  as  a  rule,  send  in  some  six  or  seven  "charges."  But,  in 
exceptional  times,  for  instance,  during  the  progress  of  dividend 
payments,  or  when,  from  any  cause,  business  is  particularly  brisk, 
many  more  charges  are  sent  in.  But  in  ordinary  times  about  half- 
a-dozen  is  the  usual  number.  At  the  opening  of  the  afternoon 
clearing  the  first  charge  delivered  is  usually  composed  of  remit- 
tances received  in  the  morning  letters.  Then  about  three  o'clock 
the  second  charge  is  sent  in,  and  is  composed  of  the  checks  and 
other  vouchers  received  over  the  counter  during  the  morning  by 
the  cashiers  for  the  credit  of  customers.  Then,  about  every  twenty 
minutes  or  so,  from  three  o'clock  till  four,  charges  of  the  same 
description  are  sent  in.  At  two  or  three  minutes  past  four  (by  the 
bank  clock)  a  final  charge,  consisting  of  a  few  articles  of  large 


266  PRACTICAL    BANKING. 

amount,  or  articles  which,  for  some  reason,  the  banker  may  be  par- 
ticularly anxious  to  clear,  may  be  sent  in.  There  is  thus  a  clerk 
running  between  each  bank  and  the  Clearing-house  from  time  to 
time,  delivering  the  charges  he  has  upon  the  other  banks. 

The  first  charge  sent  to  the  Clearing-house  during  the  day  is 
marked  on  the  back  of  the  last  check  thereof,  with  the  total  amount 
which  in  our  Clearing-houses  is  entered  on  the  exchange  slip  attached 
to  the  checks. 

Country  notes  are  not  exchanged  at  the  Clearing-house,  but  are 
taken  round  to  the  bankers  who  are  agents  for  the  country  bankers, 
and  exchanged  for  tickets,  which  are  passed  through  the  afternoon 
clearing. 

As  the  clerks  reach  the  Clearing-house  with  their  successive 
charges  they  distribute  their  packages  around  the  room  to  the 
desks  of  the  clerks  representing  the  several  paying  banks.  These 
clerks,  corresponding  to  our  settling  clerks,  immediately  begin  to 
enter  these  charges  in  the  In-clearing  Books,  in  columns  bearing  at 
the  head  the  name  of  the  presenting  bank.  As  soon  as  this  is 
done  the  vouchers  are  immediately  sent  away  to  the  bank  at  which 
they  are  payable,  where  they  are  critically  examined  and,  if  correct, 
posted  in  the  ledgers.  In  case  there  is  cause  for  refusing  payment, 
either  for  want  of  funds,  irregular  endorsement,  or  irregularity  of 
any  kind,  they  are  sent  back  to  the  clearing  and  returned  to  the 
delivering  banker  with  a  distinct  answer  marked  upon  each  check 
of  the  cause  of  the  return.  These  returns  must  be  sent  back  to 
the  Clearing-house  not  later  than  5  P.  M.  on  ordinary  days,  and  not 
later  than  5.15  in  any  event,  and  are  entered  again  as  a  reverse 
claim  by  the  bank  dishonoring  them  on  the  bank  presenting  them. 
The  clearing  clerks  do  not  wait  for  the  returns  before  they  begin 
the  balancing  for  the  day.  The  moment  the  Clearing-house  clock 
strikes  four  (five  minutes  past  by  Greenwich  time)  they  begin  the 
process  of  balancing,  leaving  the  returns,  if  any,  to  be  entered  af- 
terwards. Notwithstanding  the  vast  daily  transactions  of  the  Lon- 
don Clearing-house,  the  aptitude  of  the  clerks  for  their  particular 
work  renders  errors  of  infrequent  occurrence.  The  system  of  mark- 
ing the  first  and  largest  charge  on  the  back  facilitates  the  balanc- 
ing by  the  opportunity  it  gives  to  each  clerk  of  checking  the  major 
part  of  his  work  early  in  the  day. 

The  In-clearing  Book  of  each  clerk  ought  to  agree,  of  course, 
with  the  portions  relating  to  him  of  the  Out-clearing  Books  of  the 
other  clerks.  The  Out-clearing  Book,  it  will  be  remembered,  is  writ- 
ten up  inside  the  bank,  and  carried  to  the  Clearing-house  at  four 
o'clock  for  the  purpose  of  checking.  Each  clerk  compares  his 
work  with  that  of  the  other  clerks,  one  by  one.  If  he  is  right 
with  all  he  then  balances,  and  there  is  no  further  trouble;  but  if  he 
is  wrong  with  any,  to  any  large  amount,  he  is  bound  to  discover 


FOREIGN   CLEARING-HOUSES.  267 

his  error  before  leaving  the  house.  The  total  amount  of  the  morn- 
ing and  country  delivery  must  be  agreed  by  each  before  leaving 
the  Clearing-house.  As  to  the  other  clearing,  a  difference  of  ^1,500 
over  (the  in-clearing  clerk  being  always  supposed  right),  or  of  less 
than  ;£i,ooo  short,  is  allowed  to  stand  over  until  the  following  day 
if  it  cannot  be  readily  discovered.  Considerable  confusion  some- 
times arises  from  shouting  corrections  across  the  room  from  one 
clerk  to  another. 

The  country  clearing  was  introduced  by  Sir  John  Lubbock  in 
1858.  Every  bank  in  London  receives  during  the  day  a  large  num- 
ber of  checks  upon  country  bankers.  Upon  these  checks  the  name 
of  the  London  agent  is  printed.  Every  clearing  banker  in  London  is 
the  agent  for  one  or  more  country  banks.  Thus  the  London  and 
Westminster  Bank  is  the  London  agent  for  the  North  and  South 
Wales  Bank,  the  Nottingham  and  Notts  Bank,  and  Hall,  Lloyd  &  Co. 
On  the  checks  drawn  on  these  country  banks  the  name  of  the  Lon- 
don &  Westminster  Bank  is  printed  as  their  respective  agents.  So 
when  the  clearing  clerks  of  each  bank  get  such  checks  from  the 
cashiers,  correspondence  department,  and  other  sources,  they  pro- 
ceed to  arrange  them  for  clearing  as  they  do  town  checks,  sorting 
them  and  putting  them  up  in  packages  according  to  the  London 
agents  at  which  they  are  payable.  No  credit  is  given  in  the  clear- 
ing for  these  country  checks  on  the  day  on  which  they  are  delivered. 
The  amounts  are  simply  settled  by  the  delivering  clerks  and  the 
receiving  clerks,  and  then  the  articles  are  taken  to  the  respective 
banks,  whence  they  are  sent  by  post  the  same  evening  to  the 
country  bankers  by  whom  they  are  payable.  If  these  checks,  on 
reaching  their  destination,  are  found  to  be  in  order,  they  are  cred- 
ited in  account  with  the  London  agent,  and  advised;  but  if  any 
of  them  are  not  in  order,  either  from  insufficient  funds  or  irregular 
endorsement,  or  any  other  cause,  such  irregular  checks  are  returned 
direct  to  the  banker  whose  crossing  they  bear.  All  country  checks 
not  returned  or  advised  by  the  morning  of  the  third  day  are  assumed 
to  be  paid,  and  credit  is  accordingly  given  for  them  in  the  clear- 
ing of  that  day  and  the  amount  is  settled  for,  along  with  those 
advised  paid,  in  the  final  balance.  All  country  checks  held  by  Lon- 
don bankers,  returned  unpaid,  must  be  returned  into  the  hands  of 
the  clerk  representing  the  delivering  bank  by  half-past  twelve  on 
the  third  day,  and  they  are  simply  deducted  from  the  total  of  the 
country  checks  on  the  day  of  settlement.  The  balance  only  of  the 
country  clearing  is  brought  into  the  final  settlement  on  each  bank's 
town  clearing  balance  sheet,  as  will  be  seen  by  reference  to  the 
form  given  below.  "C.  H."  on  the  same  form  means  Clearing- 
house, and  is  meant  for  the  adjustment  of  differences,  and  "  Bank  " 
means  Bank  of  England. 


268 


PRACTICAL    BANKING. 


SPECIMEN  FORM  OF  A  LONDON  BANKERS'  CLEARING  BALANCE  SHEET. 
THE  NATIONAL  PROVINCIAL  BANK  OF  ENGLAND. 

Debtors.  Creditors. 


£ 

s. 

d. 

Alliance  .... 

£ 

s. 

d- 

Barclay. 

Barnett  

Bosanquet  

Brown  

Central  

City  

Consolidated.  .  .    . 

County    

Dimsdale  ....               , 

Fuller  

Glyn  

Imperial 

Joint  .   . 

Bank  .. 

London  &  Southwestern 
London  &  Westminster.. 
Martin. 

Metropolitan  .. 

National.  . 

Prescott 

Robarts  

Smith  

Union  

Williams  

Country  Clearing  

C.  H  

This  sheet  when  filled  up  shows  the  account  of  the  National 
Provincial  Bank  of  England  with  all  the  other  clearing  banks,  their 
names  being  abridged  to  save  space.  It  nearly  corresponds  with 
the  settling  clerk's  statement  in  the  New  York  Clearing-house,  the 
name  of  the  bank  whose  accounts  it  represents  being  given  at  the 
head  and  omitted  in  the  body  of  the  statement. 

Balances  are  settled  at  the  close  of  each  day  by  transfers  on 
the  books  of  the  Bank  of  England,  at  which  a  special  account  is 
kept,  called  the  "  Clearing  Bankers'  Account,"  in  addition  to  the 
separate  account  of  each  bank.  When  the  result  of  the  day's 
clearing  is  a  balance  against  one  of  the  banks,  Barclay  &  Co.,  for 
example,  the  transfer  is  made  in  the  following  form  : 

SETTLEMENT  AT  THE  CLEARING-HOUSE. 

LONDON,  July  i,  1884. 
To  the  CASHIERS  OF  THE  BANK  OF  ENGLAND  : 

Be  pleased    to  transfer   from  our  account   the   sum   of  Fifty-one   thousand  two 
hundred  and  one  pounds  45.  2d.,  and  place  it  to  the  credit  of   the  account  of  the 
Clearing  Bankers,  and  allow  it  to  be  drawn  for   by  any  of  them  (with  the  knowl- 
edge of  either  of  the  Inspectors,  signified  by  his  countersigning  the  drafts). 
^•51,201  43.  2d.  BARCLAY  &  Co. 


*  This  is    the    Southwark    branch    of  the   London   &   Westminster   Bank  which    clears  sep- 
arately. 


FOREIGN   CLEARING-HOUSES.  269 

For  which  the  Bank  signs  the  following  certificate: 
SETTLEMENT  AT  THE  CLEARING-HOUSE. 
BANK  OF  ENGLAND  :  yuly  i,  1884. 

A  transfer  for  the  sum  of  Fifty-one  thousand  two  hundred  and  one  pounds  48, 
ad.,  has  this  evening  been  made  at  the  Bank  from  the  account  of  Messrs.  Barclay 
&  Co.  to  the  account  of  the  Clearing  Bankers. 

j£5i,2oi  45.  ad.  FOR  THE  BANK  OF  ENGLAND. 

This  certificate  has  been  seen  by  me, 

Inspector. 

On  the  other  hand,  when  the  balance  is  in  favor  of  the  bank, 
the  National  Provincial,  for  instance,  the  following  forms  are 
used : 

SETTLEMENT  AT  THE  CLEARING-HOUSE. 

LONDON,  July  i,  1884. 
To  the  CASHIERS  OF  THE  BANK  OF  ENGLAND  : 

Be  pleased  to  credit  our  account  the  sum  of  Two  hundred  and  thirty-six  thousand 
and  forty-four  pounds  2s.  ad.  out  of  the  money  at  the  credit  of  the  account  of  the 
Clearing  Bankers.  FOR  THE  NATIONAL  PROVINCIAL  BANK  OF  ENGLAND 

^236,044  2s.  2d.  A.  B. 

Seen  by  me, 

Inspector  at  the  Clearing-house. 

For  which   the  bank  gives  the  following  certificate  : 

SETTLEMENT  AT  THE  CLEARING-HOUSE. 
BANK  OF  ENGLAND:  LONDON,  July  i,  18/84. 

The  account  of  the  National  Provincial  Bank  of  England  has  this  evening  been 
credited  with  the  sum  of  Two  hundred  and  thirty-six  thousand  and  forty-four 
pounds  as.  2d.  out  of  the  money  at  the  credit  of  the  account  of  the  Clearing 
Bankers.  FOR  THE  BANK  OF  ENGLAND. 

^236,044  2s.  2d. 

As  the  balances  paid  and  the  balances  received  are  the  same 
(errors  excepted),  so  the  amount  credited  to  the  clearing  bankers' 
account  each  day  must  be  the  same  as  the  amount  debited.  It 
is  only  a  means  by  which  the  debtor  banks  pay  the  creditor 
banks  on  each  day  by  a  simple  transfer,  without  handling  any 
cash.  Previous  to  1854  balances  were  paid  in  cash.  The  per 
cent,  of  balances  to  clearings  is  considerably  greater  at  London 
than  at  New  York,  and  has  shown  a  marked  increase.  In  1810 
the  balances  were  4.68  per  cent,  of  the  clearings;  in  1839,  6.94 
per  cent.,  and  in  1879-80,  12.16  per  cent.,  as  compared  with  4.96 
per  cent,  at  New  York  in  1879.  The  balances  are  probably  greater 
on  account  of  the  country  clearings. 

By  having  three  clearings  instead  of  one,  and  allowing  banks  to 
bring  so  many  successive  charges  at  intervals  to  each  clearing,  instead 
of  one  charge  delivered  precisely  at  a  given  hour,  the  Clearing-house 
work  occupies  very  much  more  time  than  at  New  York,  where  the 
transactions  are  considerably  larger.  In  fact,  substantially,  the  whole 
day  is  spent  by  the  clearing  clerks  at  the  Clearing-house,  or  in  going 


270  PRACTICAL    BANKING. 

to  and  from  it,  whereas  at  New  York  an  hour,  or  less,  for  each 
clerk  and  messenger  suffices  for  the  whole  work.  On  the  other 
hand,  by  having  so  many  clearings,  and  the  heaviest  at  the  close 
of  the  day,  mercantile  paper  sent  through  the  clearing  is  more 
promptly  presented. 

The  Manchester  Clearing-house  was  established  in  1872,  and  has, 
since  that  date,  been  under  charge  of  Mr.  D.  T.  Brewer,  as  inspector. 
The  work  there  is  performed  on  loose  forms,  and  not  in  account 
books,  as  at  London.  The  work  is  done  more  nearly  on  the  plan 
prevailing  at  New  York,  which  is,  in  several  respects,  an  improve- 
ment on  that  prevailing  at  London.  There  are  two  clearings  daily 
at  the  Branch  of  the  Bank  of  England,  the  first  at  11.15  A-  M- 
(a  preliminary  one),  and  the  second  at  2.15  P.  M.  The  clearing 
is  quickly  accomplished,  and  "goes  on  with  noiseless  ease,  strongly 
contrasting  with  the  turmoil  of  the  London  house."  This  is, 
of  course,  owing  in  part  to  the  immensely  larger  transactions 
effected  at  the  latter.  At  Manchester  each  of  the  twelve  clearing 
bankers  is  represented  by  a  single  clerk,  who  delivers  and  receives 
the  vouchers  and  adjusts  the  accounts.  The  balances  for  the  day 
are  settled  after  the  close  of  the  second  clearing  by  transfers  on 
the  books  of  the  Bank  of  England,  the  forms  being  very  similar 
to  those  used  at  London.  The  Clearing-house  at  Newcastle-on- 
Tyne  was  established  January  2,  1872,  and  embraces  seven  members. 
On  ordinary  days  there  are  three  clearings  daily,  usually  at  11.15 
A.  M.,  2.15  and  3.15  P.  M.  On  January  ist  there  is  one  at  10.30  A.  M. 
On  Saturdays  and  holidays  there  are  two  clearings,  usually  at  11.15 
A.  M.  and  1.15  P.  M.  Articles  dishonored  are  returned  through  the 
Clearing-house  on  the  same  day,  not  later  than  forty-five  minutes 
after  the  commencement  of  the  last  clearing.  The  methods  of  do- 
ing the  business  and  paying  balances  are  similar  to  those  in  use  at 
Manchester.  The  total  of  its  transactions  in  twelve  years  has  been 
^332,470,125,  as  compared  with  ^1,043, 360,000  at  Manchester.  The 
operations  of  the  Newcastle  Clearing-house  are  conducted  at  the 
Branch  of  the  Bank  of  England,  under  charge  of  a  committee,  of 
which  the  agent  of  the  bank — at  present  Mr.  J.  B.  Fairley — is  chair- 
man. 

There  are  also  Clearing-houses  at  Liverpool,  Edinburgh  and  Dub- 
lin. At  Edinburgh  there  is  one  general  clearing  daily,  opened  at 
one  and  closed  for  delivery  at  fifteen  minutes  past  one  P.  M.,  except 
on  Saturday,  when  it  opens  at  eleven  and  closes  at  fifteen  minutes 
past.  The  Bank  of  Scotland  and  the  Royal  Bank  of  Scotland  un- 
dertake the  settlement  each  alternate  month.  There  is  also  a  note 
exchange  daily  at  10  A.  M.,  except  on  Monday,  and  a  second  ex- 
change at  1.30  p.  M.  on  Saturday  for  large  notes  only.  On  Monday 
and  Thursday  the  balances  are  included  in  the  general  settlement 
of  the  exchange  and  clearing.  On  other  days  the  settling  bank  re- 


FOREIGN   CLEARING-HOUSES.  2/1 

ceives  from  the  debtors  and  gives  to  the  creditors  exchange 
vouchers  for  the  respective  balances  within  one  hour  after  the 
closing  of  the  Clearing-house,  and  these  vouchers  are  brought  into 
the  next  clearing,  and  bear  interest,  included  in  them,  at  two  per 
cent,  until  that  clearing.  Each  document  cleared,  except  notes,  is 
to  bear  a  Clearing-house  stamp,  containing  the  name  of  the  clear- 
ing bank  and  the  date,  also  the  stamp  of  any  district  branch  at 
which  it  may  have  been  cashed.  Documents  dishonored  are  settled 
between  the  banks,  unless  drawn  on  a  branch,  in  which  case  they 
may  be  sent  through  the  clearing  the  next  day.  These  banks  use 
clearing  books  having  every  alternate  sheet  perforated  down  the  in- 
side margin.  The  charges  against  the  other  banks  are  written  up  in 
pencil  on  the  unperforated  sheets,  and  by  the  aid  of  a  sheet  of 
carbonized  paper  placed  underneath,  an  impression  of  the  items  is 
taken  on  the  perforated  sheets.  These  duplicates  are  then  torn 
out  and  handed  over  with  the  corresponding  articles  to  the  clerks 
of  the  other  banks,  who  simply  compare  the  one  with  the  other, 
so  as  to  save  the  time  and  trouble  of  taking  down  afresh  in  their 
own  books  the  amounts  of  the  various  articles.  When  the  clerks 
return  to  their  respective  banks,  these  duplicates  are  gummed  upon 
the  margins  from  which  their  own  delivering  sheets  had  been  de- 
tached, preserving  a  convenient  record  of  the  articles  delivered  to, 
and  the  articles  received  from,  each  bank  following  each  other.  All 
abstracts  of  totals,  balances  and  the  like,  are  kept  in  a  permanent 
form,  written  in  ink.  The  paid-up  capital  of  the  Edinburgh  clear- 
ing banks  is  ;£  8, 250,000. 

The  Dublin  Clearing-house  comprises  four  banks — all  the  banks 
of  issue  in  Ireland — and  was  established  in  1845.  The  capital  of 
the  four  banks  is  ,£5,040,000.  There  are  two  clearings — in  the  fore- 
noon, for  notes  and  checks  at  10  o'clock ;  afternoon,  final  clearing 
for  checks  at  two  o'clock.  On  Saturdays  the  hours  are  9.30  A.  M. 
and  12  M.  Banks  are  admitted  to  the  exchange  for  fifteen  minutes 
after  these  hours.  Balances  are  paid  in  Exchequer  bonds,  except 
for  fractional  parts  of  £  500,  which  may  be  paid  in  notes  of  the 
debtor  bank,  the  Exchequer  bonds  to  be  used  for  no  other  pur- 
pose, and  to  be  stamped  "Dublin  Exchanges."  Each  bank  is  re- 
quired to  maintain  its  quota  of  a  total  of  ,£400,000  of  these  bonds. 
The  exchanges  are  made  at  the  Bank  of  Ireland.  All  orders  payable 
on  demand,  whether  in  Dublin  or  in  country  towns,  are  to  be 
passed  through  the  Clearing-house.  Documents  returned  dishon- 
ored are  not  allowed  to  pass  through  the  Clearing-house.  Those 
banks  in  Dublin  which  are  not  banks  of  issue  are  not  members  of 
the  Association,  but  deposit  the  checks  they  hold  on  other  banks 
with  the  Bank  of  Ireland,  with  which  they  keep  an  account. 

In  preparing  the  foregoing  account  of  British  Clearing-houses  free 
use  has  been  made  of  Gilbart  on  Banking  and  Jevons'  Money  and 


272  PRACTICAL   BANKING. 

the  Mechanism  of  Exchange,  and  of  a  series  of  articles  recently- 
published  in  the  London  Banker's  Magazine  on  the  Clearing-house 
system. 

The  Liverpool  Clearing  Association  was  formed,  according  to 
United  States  Consul  S.  B.  Packard,  about  1878,  and  embraced,  in 
1882,  ten  of  the  Liverpool  banks,  leaving  six  establishments,  mostly 
private  banks,  outside.  These  banks  keep  clearing  accounts  with 
each  other  of  all  checks  drawn  on  any  of  their  number.  Each 
bank  every  evening  makes  up  in  its  own  books  the  accounts  with 
each  of  the  other  clearing  banks,  and  settles  the  balances  due  from 
or  to  it  by  means  of  transfers  through  the  Bank  of  England's 
Liverpool  branch,  with  which  all  the  clearing  banks  keep  an  account. 
The  capital  of  the  Liverpool  clearing  banks,  exclusive  of  two  private 
banks,  was,  in  1882,  ,£3,815,110. 

Clearing-houses  were  established  at  Paris  and  Vienna  in  1872.  At 
the  latter,  in  fact,  there  are  two  Clearing-houses,  the  Bankers' 
Clearing-house,  and  the  Arrangement  Bureau,  or  Stock  Exchange 
Clearing-house.  The  latter  alone  has  transactions  of  any  great  mag- 
nitude. The  volume  of  the  check  exchange  is  small,  as  most  of 
the  public  find  bank  notes  cheaper  and  more  convenient  than 
checks,  which  are  subject  to  a  tax  of  two  kreutzers  (about  i  cent) 
each,  regardless  of  size.  The  Paris  Clearing-house  has  been  al- 
ready noticed.  In  1876  a  system  of  check  exchange  was  started 
in  Berlin,  and  developed  to  such  proportions  that  in  1883  Clearing- 
houses were  established  in  Berlin  (April  2d),  Frankfort-on-the- 
Main  (April  25),  and  Cologne,  Stuttgart,  Leipsic,  Dresden,  and  lastly 
Hamburg,  in  the  course  of  the  summer.  The  President  of  the 
Imperial  Bank  Directorium  states  that  these  institutions  are  not 
widely  different  from  the  Clearing-houses  of  London  and  New  York. 
The  most  important  of  the  German  Clearing-houses  are  those  of 
Berlin,  Hamburg,  and  Frankfort-on-the-Main,  the  others  falling  far 
behind  these.  Previous  to  last  December  the  volume  of  transac- 
tions at  these  Clearing-houses  was  not  published.  For  December 
the  aggregate  for  all  was  887,546,700  marks,  and  in  January,  1884, 
930,707,700  marks,  or  at  the  rate  of  11,168,492,400  marks — or  about 
$2,680,000,000 — for  the  year.  This  is  a  little  more  than  Chicago, 
and  a  little  less  than  Philadelphia.  There  are  fourteen  Clearing- 
houses in  Italy,  located  at  Milan,  Leghorn,  Genoa,  Catania,  Rome., 
Bologna,  and  other  places.  The  transactions  of  these  six  Clearing- 
houses amounted,  in  1884,  to  1,685,345,781  f.,  or  about  $325,000,000, 
those  of  Milan  and  Leghorn  being  the  only  ones  of  importance. 

The  Banks'  Clearing-house  of  Melbourne,  Australia,  is  analogous  to 
the  other  British  Clearing-houses.  On  ordinary  days  there  are  six 
clearings ;  on  Saturdays  four ;  on  Mondays  eight ;  on  Tuesdays 
five.  An  exchange  slip  accompanies  each  charge  delivered  at  the 
Clearing-house.  There  is  a  special  clearing  for  checks  returned  dis- 


FOREIGN    CLEARING-HOUSES.  273 

honored  for  any  cause.  Balances  are  paid  every  Tuesday,  all  even 
sums  of  £$oo  and  upwards  in  sovereigns  or  parchment  vouchers. 
These  vouchers  are  issued  against  a  deposit  of  sovereigns  at  one 
of  the  banks  under  the  care  of  trustees,  and  are  of  denominations 
of  .£500  and  j£  i,ooo.  The  total  issue  is  ^500,000.  All  sums  under 
^500  are  settled  by  checks,  which  are  paid  into  a  Clearing-house 
account  kept  at  one  of  the  banks.  Bank  notes  have  been  included 
in  the  clearing  since  1876. 


374  PRACTICAL    BANKING. 


CHAPTER  XIII. 
COUNTRY    CLEARINGS. 

At  London,  as  already  stated,  the  country  Clearing-house  has  been 
in  operation  since  1858.  But  in  this  country  clearing  methods  have 
hitherto  been  applied  only  to  transactions  among  banks  situated  in 
the  same  place  or  its  immediate  vicinity,  though  susceptible  of  ex- 
tension to  transactions  between  different  monetary  centers  and 
possibly  even  to  international  settlements.  The  establishment  of 
some  system  for  the  more  speedy  and  economical  collection  of 
country  checks  is  a  matter  of  growing  importance  owing  to  changes 
in  the  methods  of  doing  business.  Mr.  C.  B.  Patten,  Cashier  of  the 
State  National  Bank  of  Boston,  furnishes  some  interesting  facts  in 
this  connection  in  reference  to  New  England,  which  doubtless  hold 
good  elsewhere.  Formerly  under  the  State  bank  system  it  was  the 
allmost  universal  custom  for  merchants  in  the  interior  to  pay  their 
bills  in  Boston  by  sending  the  money  or  a  check  on  a  Boston 
bank  which  they  obtained  from  their  nearest  country  bank,  paying 
for  the  same  the  usual  charge  for  exchange.  But  in  later  years  a 
different  practice  has  been  growing  up.  The  country  trader  now 
sends  his  Boston  creditor  a  check  upon  the  country  bank  where 
he  keeps  his  account.  The  country  banks,  of  course,  expect  to  pay 
these  at  par  at  their  own  counters,  but  they  will  not  as  a  rule  pro- 
vide funds  to  meet  them  in  Boston  without  a  charge  for  exchange, 
varying  from  one-tenth  of  one  per  cent,  on  the  larger  checks  to 
one-quarter  or  even  one-half  of  one  per  cent,  on  the  smaller  ones. 
So  keen  is  the  competition  among  traders,  however,  that  these 
checks  are  taken  by  them  at  par,  and  the  banks  driven  also  by  com- 
petition usually  do  likewise.  To  avoid  the  charges  made  by  the 
country  banks,  checks  are  frequently  sent  home  by  the  most  cir- 
cuitous routes,  travelling  about  from  city  to  city  and  from  bank  to 
bank  for  several  days.  An  instance  is  given  where  a  check  for  $48 
on  a  bank  in  Mt.  Gilead,  Ohio,  deposited  at  Columbus,  was  sent 
successively  to  Cincinnati,  Cleveland,  Urichsville,  Coshocton,  New- 
ark, back  to  Columbus,  and  then  to  Cardington,  before  reaching 
its  destination,  being  out  eight  days  and  traveling  650  miles  when 
sixty  miles  would  have  sufficed.  As  the  check  was  not  paid  it  had 
to  be  sent  back  through  the  same  channels.  Another  case  has  been 


COUNTRY   CLEARINGS. 


275 


given  of  an  item  returned  protested  nineteen  days  after  it  started 
for  presentation  toward  a  paying  bank  twenty  hours  distant.  It  is 
easy  to  see  how  by  these  delays  endorsers  may  be  discharged  to  the 
serious  loss  of  some  holder  of  the  check,  not  to  mention  other  con- 
tingencies. It  would  be  difficult  to  show  that  due  diligence  was 
used  in  presenting  a  check  by  such  a  circuitous  route.  It  is  said, 
too,  that  these  cases  are  by  no  means  unusual. 

The  growing  importance  of  the  subject  led  to  the  consideration 
of  the  remedies  to  be  adopted  at  the  annual  meeting  of  the  Boston 
Clearing-house  Association,  April  9,  1877.  A  committee  was  ap- 
pojnted  consisting  of  Messrs.  George  Ripley,  John  Cummings,  Ed- 
ward Sands,  Edward  L.  Tead  and  Geo.  R.  Chapman,  representing 
respectively  the  Hide  and  Leather,  Shawmut,  Traders',  Exchange 
and  Merchants'  National  banks.  This  committee  in  August  made 
a  majority  report  signed  by  Messrs.  Ripley,  Cummings,  Sands  and 
Chapman,  and  minority  report  signed  by  Mr.  Tead.  From  the  ma- 
jority report  it  appears  that  the  daily  outstanding  balances  due  to 
fifty  of  the  fifty-one  associated  banks  on  account  of  New  England 
country  collections  then  amounted  to  $2,187,329.  This  had  increased 
in  November,  1883,  to  $4,300,000.  The  number  of  checks  daily  sent 
out  in  1877  was  4,080,  probably  increased  in  like  proportion,  and 
the  number  of  letters  sent  daily  was  1,670,  although  there  were 
only  272  towns  in  New  England  which  had  National  banks.  The 
amount  paid  yearly  for  exchange  and  expenses  was  computed  to 
be  $119,647,  and  interest  on  the  outstanding  balances  at  five  per 
cent,  reached  $109,366,  making  a  total  annual  cost  of  $229,013,  in- 
creased to  $398,000  in  1883.  The  cost  of  collecting  each  check 
was  found  by  the  committee  to  be,  for  exchange,  .045  of  a  dollar; 
other  expenses,  .048;  interest,  .085,  giving  a  total  of  .178  of  a  dollar, 
or  about  nine  times  the  United  States  stamp  tax  on  a  check,  which 
was  justly  complained  of  by  business  men  and  banks  alike.  The 
cost  for  each  letter  was  forty-four  cents — eleven  cents  for  exchange, 
twelve  for  expenses,  and  twenty-one  for  interest.  Under  the  ar- 
rangements then  and  still  existing,  remittances  from  country  banks 
vary  in  frequency  from  once  a  week  to  once  a  month,  in  exceptional 
cases  perhaps  oftener.  It  was  believed  that  by  a  consolidation  of 
the  business  the  amount  of  the  outstanding  balances  might  be  re- 
duced one-half  by  more  frequent  remittances;  that  the  item  of 
exchange  largely  made  up  of  charges  upon  small  checks  of  less 
than  $200  could  be  very  much  reduced  by  having  the  remittances 
made  in  larger  sums;  and  that  the  sending  of  272  letters  daily, 
one  for  each  town  having  a  National  bank,  would  suffice,  thereby 
saving  1,400  of  the  1,670  letters  daily  sent  out,  and  largely  reduc- 
ing the  clerical  expenses.  The  danger  of  loss  resulting  from  delay 
in  presenting  checks  would  also  be  reduced  to  a  minimum  by 
the  introduction  of  a  better  system.  The  majority  of  the  commit- 
tee reached  the  following  conclusions  • 


276  PRACTICAL    BANKING. 

"  i st.  That  the  business  of  making  collections  throughout  New 
England,  as  now  conducted,  is  attended  with  great  unnecessary  labor, 
risk  and  expense. 

"2d.  That  its  extent,  though  now  large,  will  inevitably  increase 
with  the  growth  of  our  city. 

"3d.  That  the  only  way  materially  to  reduce  the  labor,  risk  and 
expense  connected  with  it  is  to  consolidate  the  business." 

To  this  -end  they  recommended  the  establishment  of  a  National 
bank  to  be  used  as  an  agency  in  making  such  collections,  the  stock 
of  the  bank  to  be  subscribed  by  members  of  the  Clearing-house 
Association. 

The  minority  report  combats  the  proposed  plan  as  exposing  too 
much  the  business  of  each  bank,  and  as  not  reducing  the  expenses 
as  much  as  the  majority  anticipated.  It  was  shown  that  ten  banks 
having  the  largest  foreign  bank  accounts,  made  more  than  one  half 
of  all  the  New  England  collections  at  an  expense  of  5^  cents 
each,  exclusive  of  interest,  and  that  the  superior  facilities  acquired 
by  these  banks  after  years  of  experience,  could  not  be  transferred 
to  the  proposed  collection  bank,  but  would  be  irretrievably  lost  to 
themselves  by  the  proposed  change.  The  indirect  advantages  de- 
rived by  the  banks  from  their  collection  business,  in  enlarged  ac- 
quaintance and  the  maintenance  of  a  more  lively  interest  between 
the  Boston  banks  and  those  of  the  country,  were  deemed  a  full 
equivalent  for  the  necessary  labor  and  expense  involved. 

It  was  found,  on  inquiry,  that  as  a  National  bank  cannot  sub- 
scribe to  the  stock  of  another  National  bank,  the  proposed  plan 
was  not  feasible.  The  steady  increase  of  the  business,  however, 
again  forced  the  matter  upon  the  attention  of  the  Association. 
Another  committee  was  chosen,  consisting  of  Messrs.  George  Ripley, 
John  Cummings,  Charles  A.  Vialle,  A.  L.  Newman,  and  Walter  S. 
Blanchard,  representing,  respectively,  the  Hide  &  Leather,  Shawmut, 
Republic,  Commonwealth,  and  Metropolitan  National  banks.  This 
committee,  in  November,  1883,  reported  unanimously  in  favor  of 
establishing  an  agency  similar  to  the  Clearing-house,  which  should 
have  no  capital  and  make  no  charge  for  its  services,  but  whose  ex- 
penses should  be  borne  by  the  banks  in  proportion  to  the  business 
done.  On  account  of  the  expense  attending  such  an  organization 
this  plan  was  defeated.  The  whole  matter  remains,  therefore,  in 
its  previously  unsettled  condition.  Mr.  C.  B.  Patten,  Cashier  of  the 
State  National  Bank,  has  suggested  that  the  banks  contract  with 
one  of  their  number  to  undertake  this  business  for  all,  as  more 
economical  than  the  proposed  Clearing-house  for  country  checks, 
since  an  established  bank  "  is  already  in  possession  of  the  '  plant ' 
necessary  for  the  transaction  of  such  business,  and  could  make 
money  out  of  it,  with  a  charge  for  exchange  which  would  not  sup- 
port an  independent  Clearing-house."  The  unwillingness  of  the 


COUNTRY  CLEARINGS.  277 

banks  to  expose  their  business  to  one  of  their  number,  or  to  give 
the  collecting  bank  the  advantage  it  would  thus  enjoy  for  obtaining 
country  deposits,  is  likely  to  interpose  a  serious  obstacle  to  the 
adoption  of  this  plan. 

The  matter  of  country  collections  has  also  been  discussed  by  the 
bankers  of  Pittsburgh  and  vicinity,  where  Mr.  E.  B.  Isett,  President 
of  the  Altoona  Bank,  submitted  a  plan  for  the  formation  of  a  Clear- 
ing-house among  the  country  banks  themselves,  at  some  central 
point,  by  which  the  daily  settlements  could,  it  is  claimed,  be  ef- 
fected with  nearly  as  much  celerity  for  a  district  reached  by  one 
day's  mail  as  in  the  Clearing-house  of  a  city.  Such  an  institution 
could  but  be  a  source  of  union  and  strength  to  the  banks  .them- 
selves, as  well  as  a  great  convenience  to  the  business  community. 
It  would  enable  the  banks  to  exert  a  coercive  power  over  those  that 
refused  to  take  part  in  the  movement  by  rejecting  their  checks. 
These  Clearing-houses  would  furnish  an  easy  means  of  communica- 
tion between  banks  in  different  parts  of  the  country,  and  establish 
on  a  permanent  basis,  the  system  of  par  redemption  for  country 
checks  at  certain  central  points.  The  great  difficulty  with  this 
plan  is  to  arouse  the  country  banks  to  a-  sense  of  their  duty  in  the 
matter.  Under  the  present  system  they  enjoy,  at  the  expense  of 
banks  at  the  great  centers,  all  the  advantages  of  par  redemption 
of  their  checks.  It  is  not  just  that  the  city  banks  alone  should 
bear  this  expense.  The  receipt  of  country  checks  at  par  by  banks 
in  the  great  cities  is  a  matter  of  common  interest,  not  to  them 
alone,  but  to  the  country' banks  and  to  their  customers  alike,  and 
all  should  be  required  to  share  the  necessary  cost. 

The  commercial  unity  of  the  country  demands  a  recognition  in 
all  business  arrangements.  Isolated  action  on  the  part  of  individual 
banks  cannot  permanently  cope  with  the  problem  now  before  us. 
Concerted  action  among  the  banks  at  the  principal  commercial  cen- 
ters is  necessary.  If  all  cannot  be  induced  to  unite  at  first,  let  enough 
join  in  some  common  movement  to  give  it  a  strength  and  prestige 
that  shall  gradually  bring  all  into  the  arrangement.  Those  who  are 
familiar  with  the  history  of  the  Suffolk  Bank  system  for  the  par 
redemption  of  New  England  bank  notes  know  what  bitter  opposi- 
tion that  system  at  first  encountered  on  the  part  of  the  country 
banks.  The  Suffolk  Bank,  with  the  six  banks  which  first  inaugur- 
ated the  movement,  was  styled  in  derision  the  "  Holy  Alliance,"  and 
sometimes  the  "  Six-tailed  Bashaw."  Yet  the  system  finally  triumphed 
over  all  opposition,  and  became  firmly  established,  to  the  great  bene- 
fit of  the  country  banks  themselves.  For  forty  years  this  system 
gave  a  unique  and  peculiar  character  to  New  England  banking,  by 
virtue  of  which  New  England  bank  notes  attained,  even  in  remote 
parts  of  the  Union,  a  credit  which  was  frequently  refused  to  the 
issues  of  the  local  banks.  The  country  banks  will,  no  doubt,  now 


278 


PRACTICAL    BANKING. 


cling  to  the  small  benefits  they  derive  from  the  delays  in  present- 
ing checks,  and  the  charges  they  impose  for  exchange,  until  they 
can  be  made  to  take  a  broader  view,  and  measure  at  their  true 
value  the  indirect  advantages  which  they  themselves  will  realize 
from  a  comprehensive  and  liberal  policy  in  extending  increased  busi- 
ness facilities  to  their  customers.  The  internal  commerce  of  the 
country  should  not  be  subjected  to  a  tax  on  transactions  between 
city  and  country  nine  times  as  great  as  the  stamp  tax  on  checks. 
This  is  one  of  the  very  evils  that  existed  in  England  before  the  estab- 
lishment of  the  country  clearing.  The  latter  has  proved  a  complete 
remedy  there  as  it  would  no  doubt  here.  The  details  of  some  work- 
ing plan  must  be  elaborated  by  the  bankers  themselves,  but  that 
business  is  fast  outgrowing  the  present  system,  if  it  has  not  already 
outgrown  it,  is  a  proposition  which  will  receive  very  general  assent. 

As  some  of  the  Clearing-houses  have  until  within  a  few  years 
made  no  returns,  while  others  have  only  recently  begun  to  make  up 
their  statements  by  calendar  years,  an  entirely  accurate  comparative 
statement  cannot  be  given.  The  following  shows  approximately 
the  stupendous  growth  of  the  system  in  this  country: — 


No.  of  As- 
sociations. 

No.  Reporting. 

Aggregate  Exchanges. 
United  States. 
Millions. 

Exchanges  Outside 
New  York. 
Millions. 

1853 

I 

I 

*  $  1,304,9 

1854 

X 

I 

5,798,6 

1855 

I 

I 

5,673,7 

1856 

2 

2 

8,404,2 

$  1,057,4 

1857 
1858 

2 

5 

2 

3 

8,591,4 
7,215,7 

1,395,3 
1,839,5 

1859 

5 

3 

9,069,3 

2,470,5 

1860 

5 

3 

10,022,1 

2,628,2 

1861 

6 

4 

7,507,4 

1,991,0 

1862 

6 

4 

10,120,1 

1,885,3 

1863 

6 

4 

20,442,4 

3,oi4,7 

1864 

6 

4 

30,053,5 

4,4i3,4 

8 

5 

30,437,0 

4,579,0 

1866 

ii 

7 

36,235,9 

4,769,4 

1867 

ii 

7 

30,322,2 

4,5II,o 

1868 

12 

7 

36,079,7 

4,920,0 

1869 

14 

9 

41,157,1 

5,616,0 

1870 
1871 

3 

9 

10 

32,849,7 

37,200,5 

5,763,4 
6,557,5 

1872 

20 

13 

43,58i,5 

7,212,0 

1873 

21 

J3 

37,686,6 

7,846,2 

1874 

23 

»4 

31,822,1 

7,372,0 

1875 

32,339,7 

8,025,9 

1876 

26 

18 

29,579,8 

8,103,2 

1877 

27 

23 

3i,944,2 

8,143,5 

1878 
1879 

2 

24 
24 

3o,i33,i 

38,59!,  2 

7,732,0 

9,355,5 

1880 

29 

26 

50,H3,9 

n,499,5 

1881 

30 

27 

63,414,6 

14,037,7 

1882 

3<> 

29 

60,877,4 

13,960,5 

1883 

3i 

3i 

51,827,1 

14,392,8 

Total.  .  . 

$870.706,6 

$175,092,4 

*r  "/^oy^J^ 

*  Three  months  only. 


PART  IV. 
LOAN  AND  TRUST  COMPANIES. 


HISTORY  AND  SCOPE  OF   LOAN    AND  TRUST  COMPANIES.         2&1 


CHAPTER    I. 
HISTORY  AND  SCOPE  OP  LOAN  AND  TRUST  COMPANIES. 

Loan  and  trust  companies  may,  with  propriety,  be  termed  Ameri- 
can institutions.  They  had  their  birth  in  this  country.  Charters 
under  which  some  are  working  to-day  date  back  sixty  to  seventy- 
years.  One  corporation  in  Philadelphia,  doing  a  loan  and  trust 
business,  was  organized  in  1812,  and  another  in  1832.  In  New 
York  one  was  granted  a  charter  in  1822,  and  another  in  1830.  But 
the  great  majority  have  come  into  existence  within  the  past  twenty 
years.  Twenty-five  years  ago  but  few  of  the  loan  and  trust  com- 
panies now  doing  business  were  in  existence ;  hence  it  may  be 
said  that  they  are  a  modern  institution.  In  many  of  the  larger 
cities  one  or  more  may  now  be  found.  In  New  York  there  are 
eleven,  in  Philadelphia  nine,  in  Boston  eight,  and  in  Chicago  four, 
while  in  many  prominent  commercial  centers  there  are  none. 

The  original  design  of  the  early  corporations  was  that  of  insur- 
ing lives  and  granting  annuities.  The  business  of  holding  trusts 
and  procuring  capital  for  various  enterprises  was  a  secondary  con- 
sideration. Life  insurance  with  some  of  the  older  companies  was 
looked  upon  as  the  chief  source  of  revenue.  But  the  tendency  of 
business  toward  specialization  has  had  its  influence  upon  these 
great  financial  corporations,  as  it  has  upon  almost  every  depart- 
ment of  business  and  social  life.  The  business  of  life  insurance 
has  become  a  gigantic  enterprise  of  itself,  far  surpassing  in  financial 
importance  the  operations  of  loan  and  trust  companies.  It  is  one, 
however,  which  does  not  come  for  consideration  within  the  limits 
of  this  treatise. 

The  usefulness  in  the  financial  world  of  loan  and  trust  companies 
is  well  understood.  In  some  respects  they  are  similar  to  banks;  in 
others  they  are  widely  different.  They  receive  deposits  and  make 
loans,  but  they  do  not  issue  currency  nor  undertake  the  general 
collection  of  commercial  paper.  The  purposes  for  which  they  are 
organized  and  the  services  they  perform  are  numerous.  The  scope 
of  their  business  has  broadened  to  correspond  with  their  growth 
of  capital  and  to  keep  pace  with  the  vast  sums  of  money  they 
have  charge  of.  By  the  great  breadth  of  their  charters  they  ac- 
cept and  execute  all  kinds  of  trusts.  They  act  as  registrars  and 
agents  for  the  transfer  of  stocks  and  bonds,  as  trustees  for  corpora- 


282  PRACTICAL    BANKING. 

tions,  and  as  executors,  administrators,  guardians,  and  receivers  of 
money  for  courts  in  complicated  litigations.  They  do  a  general 
financial  business  for  bankers  and  others,  make  investments,  collect 
interest,  and  perform  many  other  financial  services.  They  are  or- 
ganized under  special  charters  granted  by  the  legislatures  of  the 
respective  States  in  which  they  are  located. 


LOAN  AND  TRUST  COMPANIES. 


CHAPTER    II. 
HOW  BUSINESS  IS  CONDUCTED. 

A  number  of  persons  desire  to  construct  gas  works.  The  city 
where  the  works  are  to  be  built  promises  a  liberal  support  to  the 
enterprise.  The  project  has  been  fully  discussed  by  the  business 
men  and  property  owners  of  the  place,  and  a  number  of  them  de- 
cide to  combine  their  efforts  in  carrying  it  through.  To  build  the 
works  and  lay  the  pipes  requires  a  large  expenditure  of  money. 
It  is  learned  that  for  a  good  part  of  the  necessary  capital  outside 
assistance  must  be  asked.  There  is  nearly  always  plenty  of  money 
for  all  such  enterprises,  provided  it  can  be  shown  that  the  security 
is  ample.  In  the  large  financial  centers,  it  is  known,  there  may 
be  secured  the  desired  means  at  a  fair  rate  of  interest  when  the 
investment  can  be  shown  to  be  a  safe  one.  What  steps  are  best 
to  be  taken?  The  promoters  of  the  scheme  propose  to  organize  a 
joint-stock  company. 

Estimates  have  been  made,  which  show  that  fifty  thousand  dol- 
lars will  make  a  reasonable  start  towards  carrying  the  project  along. 
A  canvass  shows  that  capital  stock  to  this  amount  would  be  sub- 
scribed for.  The  company  is  formed,  a  charter  granted,  and  per- 
mission given  by  the  city  authorities  to  lay  and  maintain  the  pipe 
lines.  Further  estimates  are  now  made,  and  it  is  shown  that  to 
build  the  works  and  lay  sufficient  piping  for  present  needs  there  will 
be  required,  besides  the  already  paid-in  capital  of  the  company, 
about  two  hundred  thousand  dollars.  This  must  be  secured  by  a« 
loan. 

The  company  decide  to  issue  first  mortgage  bonds  for  the  amount 
of  money  needed.  If  they  can  find  persons  in  their  own  city  or 
among  the  stockholders  who  are  in  position  and  are  willing  to 
loan  the  money  they  need  not  call  for  outside  assistance.  But  in 
this  they  do  not  succeed.  They  then  must  go  to  some  financial 
metropolis  where  money  is  seeking  investment.  Here  they  are  con- 
fronted with  the  inquiry:  How  do  we  know  that  our  investment 
will  be  a  safe  one  ?  What  assurance  have  we  that  your  company  is 
properly  organized,  and  that  the  proper  authority  has  been  given  for 
it  to  make  this  loan  ?  And  each  person  who  might  be  willing  to 
purchase  some  of  the  bonds  demands  the  right  to  have  an  agent 
examine  into  all  the  facts,  and  report  upon  the  conditions,  before  the 


2$4  PRACTICAL    BANKING. 

money  could  be  paid  over.  In  this  case  the  company  must  pay  the 
expenses  and  fees  of  the  agents  and  lawyers.  They  see  such  a 
course  is  going  to  make  it  exceedingly  expensive.  But  the  money 
must  be  procured,  and  what  shall  be  done? 

A  happy  thought  occurs  to  them.  They  will  go  to  a  loan  and 
trust  company.  They  visit  one  of  these  institutions,  and  learn  that 
they  will  have  no  trouble  about  securing  the  required  loan,  if  a 
clear  title  to  the  property  to  be  mortgaged  can  be  shown,  and  the 
other  usual  requirements  of  investors  in  such  securities  are  found 
satisfactory.  "We  will  transact  your  business  for  you,"  says  an 
officer  of  the  trust  company.  "In  the  first  place  we  must  put 
the  matter  in  the  hands  of  our  attorneys,  who  will  report  upon  the 
legal  status  of  your  company.  We  must  know  how  much  of  your 
capital  has  been  paid  in.  The  amount  of  work  you  have  done  in 
the  new  enterprise.  What  your  assets  and  liabilities  are.  The  re- 
cording of  the  mortgage  bond  of  your  company  may  be  left  with 
us,  or  our  attorneys  will  look  to  see  that  it  has  been  properly  at- 
tended to.  We  will  issue  the  bonds  from  our  institution,  make  all 
transfers,  and  pay  the  interest  for  you  when  it  becomes  due.  In  fact^ 
we  will  transact  the  whole  business,  turning  over  the  money  from 
the  sale  of  your  bonds  as  it  is  paid  in.  How  much  money  do  you 
want  to  procure  ?  " 

"We  wish  to  procure  two  hundred  thousand  dollars,  or  what 
will  come  from  a  two-hundred-thousand-dollar  bond.  We  have 
invested  about  forty  thousand  dollars.  The  money  procured  is  to  be 
applied  in  completing  our  works  and  in  extending  the  pipe  lines." 

"If  you  have  invested  only  about  forty  thousand  dollars  and  are 
free  of  debt,  we  would  suggest  that  the  loan  be  made  in  install- 
ments. We  could  not  undertake  to  issue  the  whole  amount  of  the 
bonds,  excepting  as  the  work  progresses,  and  until  we  are  assured 
that  the  money  received  for  bonds  issued  had  been  properly  applied 
in  the  construction  of  the  works.  We  would  issue,  say,  twenty-five 
thousand  dollars  as  the  first  installment,  then  we  could  issue  fifty 
thousand  as  the  second  installment,  and  so  on,  increasing  the  issue 
according  to  the  increase  in  the  value  of  the  security  offered." 

"  And  on  what  terms  would  you  undertake  this  business  ?  " 

"We  would  charge  you  by  the  year,  according  to  the  amount  of 
business  transacted,  or  liable  to  be  transacted.  You  would  pay  for 
the  fees  necessarily  incurred  at  the  start,  and  thereafter  probably  two 
hundred  to  three  hundred  dollars  a-year,  according  to  circumstances 
and  arrangements." 

An  agreement  is  entered  into.  The  officers  of  the  gas  company 
are  put  to  no  further  inconvenience  or  delay.  When  they  inform  the 

money-lender  that  the  Loan  and  Trust  Company  have  charge 

of  their  mortgage  business,  and  are  issuing  the  bonds,  no  inquiries 
are  made  as  to  the  legal  status  of  the  company  or  the  mortgage. 
The  capital  is  secured,  and  the  company  pushes  ahead  with  its  work. 


LOAN   AND  TRUST   COMPANIES.  285 

Loan  and  trust  companies  have  often  proven  of  great  service  in 
the  construction  of  railroads.  Of  course  railroads  would  be  built  and 
bonds  disposed  of  without  the  mediation  of  such  agencies,  but  the 
trust  companies  have  greatly  facilitated  the  work  and  reduced  the 
expenses. 

A  party  of  gentlemen,  for  instance,  organize  a  company  to  build  a 
railroad  which  shall  run  through  several  States.  They  cannot  among 
themselves  raise  the  necessary  capital.  They  are  willing  to  risk  a  rea- 
sonable amount  of  money  in  the  project,  if  the  amount  required  to 
complete  the  road  can  be  secured  after  their  own  investment  shall 
have  been  expended.  They  find,  among  wealthy  capitalists,  persons 
who  are  willing  to  advance  the  funds,  but  they  do  not  wish  to  as- 
sume any  risks  as  stockholders.  They  prefer  to  loan  the  money  at 
a  fair  rate  of  interest.  If  the  scheme  is  successful  the  projectors 
can  pay  the  money  back  and  own  the  property,  thus  derive  all  the 
advantages  accruing  from  their  wisdom  and  risks. 

The  following  is  the  form  of  a  receipt  and  transfer  voucher  : 


No  

New  York,  18.... 

For  value  received 

do  hereby  assign  and  trans- 

Folio 

fer  unto 

Folio  Certificates. 

.  .  Shares  of  the  Capital  Stock  of 

the  *  

....  name  on  the  books  of  said 

company. 

When  the  promoters  of  the  project  visit  a  loan  and  trust  com- 
pany, they  lay  the  facts  before  the  officers  of  the  company.  They 
are  told  that  when  they  have  constructed  a  certain  amount  of  road 
the  trust  company  will  undertake  to  place  their  loan  on  the  mar- 
ket. First,  the  mortgage  securing  the  loan  must  be  recorded  in 
every  county  of  each  State  through  which  the  road  is  to  run.  Sat- 
isfactory evidences  that  the  mortgage  is  so  recorded  must  be  in 
the  possession  of  the  trust  company.  Arrangements  can  then  be 
made  to  the  effect  that,  as  certain  sections  of  the  road  are  con- 
structed, a  certain  number  of  bonds  will  be  issued.  The  amount 
to  be  issued  will  depend  on  the  cost  per  mile  of  constructing  the 
road.  Purchasers  of  the  bonds  rely  on  the  loan  and  trust  company 
to  see  that  there  is  never  an  over-issue  of  bonds. 

*  The  title  of  the  corporation  printed  in  full. 


366 


PRACTICAL   BANKING. 


Suppose  the  understanding  between  the  purchasers  of  the  bonds 
and  the  railroad  officials  provides  that  for  the  completion  of  each 
ten  miles  of  road  there  are  to  be  issued  bonds  to  the  amount  of 
fifty  thousand  dollars.  It  becomes  the  duty  of  the  trust  company  to 
know  that  this  amount  is  not  exceeded.  Any  excess  in  issue  would 
depreciate  the  value  of  the  security.  It  is  seen  in  this  how  the 


For  explanation  of  Forms,  see  closing  paragraph  of  this  chapter. 
Right  hand  page. 


REGISTER  OF  CERTIFICATES  OF  STOCK. 
Countersigned  by  the 

Date  of  Surrendered 
Certificate  Can- 
celed. 

No.  of 
Ctf. 

No.  of 
Shares. 

In  Name  of 

Remarks. 

trust  company  serves  the  interests  of  both  borrowers  and  lenders. 
The  trust  company  not  only  attends  to  the  business  of  the  railroad 
company  in  securing  funds,  but  guarantees  to  purchasers  of  its  se- 
curities that  there  is  no  wrongful  or  over-issue.  The  part  taken  by 
the  trust  company  is  one,  then,  not  only  to  transact  the  business 
for  the  corporation,  but  to  supplement  this  service  by  aiding  in  se- 
curing the  faith  and  confidence  of  investors  that  the  securities  they 
take  are  in  every  case  what  they  are  represented  to  be. 
Another  important  service  is  rendered  by  loan  and  trust  com- 


LOAN   AND  TRUST  COMPANIES. 


287 


panics  to  corporations.  That  is,  issuing  certificates  of  stock,  and,  in 
case  of  sale  from  one  person  to  another,  making  transfers  of  same. 
Many  corporations  leave  the  business  connected  with  stock  opera- 
tions almost  entirely  in  the  hands  of  some  loan  and  trust  company. 
The  purchase  and  sale  of  stocks  of  corporations,  especially  those 
whose  stocks  are  on  the  market,  is  made  mostly  in  some  of  the 
important  financial  centers  of  the  country.  Here  too,  is  where  the 
loan  and  trust  companies  are  located.  It  is  a  special  advantage  to 


Left  hand  page. 


........    .    .       .                    Loan  and   Trusi 

'  Company. 

Date  of  New  Ctf  . 
Countersigned  and 
Issued. 

No.  of 
Ctf. 

No.  of 
Shares. 

In  Name  of 

Remarks. 

i 

holders  of  stocks  to  be  able  to  have  the  necessary  record  made 
on  the  books  of  the  company,  showing  that  they  are  the  holders, 
without  having  to  forward  the  certificates  to  some  remote  place  for 
that  purpose.  By  an  arrangement  between  the  loan  and  trust  com- 
pany and  the  corporation,  the  former  becomes  the  custodian  of  the 
transfer  books.  When  an  election  of  officers  of  the  corporation 
takes  place  the  transfer  and  stock  books  must  be  in  the  hands  of 
the  inspectors  of  the  election.  To  meet  this  requirement  the  books 


288 


PRACTICAL  BANKING. 


are  forwarded  or  handed  over  to  the  officers  of  the  corporation  by 
the  loan  and  trust  company. 

When  the  holder  of  shares  of  a  corporation  sells  his  stock,  and 
the  purchaser  wishes  the  transfer  recorded  on  the  books  of  the 
company  he  must  present  to  the  transfer  clerk  at  the  office  of  the 
loan  and  trust  company  the  stock  of  the  seller.  This  stock  be- 
comes the  voucher  of  the  transfer  clerk,  showing  his  authority  for 
making  the  transfer. 


RECORD  OF  MORTGAGE  BONDS  OF  THE  BEE  LINE  R.  R.  COMPANY. 
1884.                                       Bonds  Received. 

Oct. 

10 

Rec'd  from  the  Bee  Line  R.R. 

Company  per  Jacob  Trusty, 

President,    150  First   Mort- 

gage Bonds,  Nos.  i  to  150 

inclusive.     To  be  issued  ac- 

cording   to    the    terms    of 

agreement,   in  installments 

of  ten  each,  upon  comple- 

tion of  ten-mile  sections  of 

said  railroad. 

Par  value,  $  1,000. 

150 

150,000 

On  pages  286  and  287  the  formular  arrangement  of  a  register  for 
recording  transfers  of  stock  certificates  is  given.  The  form  on  286 
represents  the  left-hand,  and  on  page  287  the  right-hand  pages  of 
such  a  register.  The  headings  over  the  several  columns  serve  to 
explain  fully  the  nature  of  the  entries  to  be  made  in  the  book. 
The  blank  line  at  the  top  of  the  right-hand  page  is  left  for  writing 
the  title  of  the  corporation  from  which  the  certificates  are  issued. 
The  register  is  kept  by  the  trust  clerk.  A  separate  register  is  kept 
for  each  corporation. 

Loan  and  trust  companies'  records  of  mortgage  bonds  of  corpora- 
tions are  made  in  a  book  with  the  ordinary  journal-rulings,  a 
column  being  added  for  giving  the  number  of  bonds  received  and 


LOAN   AND  TRUST  COMPANIES. 


289* 


issued.  The  form  on  page  288  represents  the  left-hand,  and  the- 
form  on  page  289  the  right-hand  page  of  such  a  register.  These 
books  are  merely  books  of  record  and  do  not  form  any  part  of 
the  general  set  of  books  kept  by  loan  and  trust  companies. 

Much  of  the  bookkeeping  of  loan  and  trust  companies  is  simi- 
lar in  character  to  that  of  banks  and  bankers  generally.  These 
corporations  often  do  a  large  banking  business,  and  have  dealers 
who  keep  running  accounts.  They  more  generally,  however,  have- 


HELD  IN  TRUST  AND  DELIVERED  BY  THE  , 
LOAN  AND  TRUST  C 
1884.                                      Bonds  Delivered. 

... 

0. 

Oct. 

25 

Delivered 

To  J.  C.  Smith  3  Bonds  at 

market  value  of  $900  

2,7OO 

To  A.  Goodfellow  2  Bonds 

at  market  value  of  $  900.  .  . 

2 

1,800 

To  John  Topheavy  $  Bonds 

at  market  value  of  $  900.  .  . 

5 

4,500 

the  accounts  of  a  class  who  do  not  so  frequently  disturb  their  de- 
posits. Depositors  with  such  companies  as  a  rule  are  paid  interest 
on  their  credit  balances.  This  requires  a  slight  alteration  in  some 
of  the  usual  banking  books  to  make  them  available.  The  dealers." 
or  depositors'  ledgers,  for  instance,  are  ruled  with  special  columns 
for  crediting  interest  on  deposits. 

The  other  records  are  kept  through  the  use  of  an  ordinary  set 
of  double-entry  books.  Of  the  various  trusts  managed  by  sucba 
companies  there  are  required  to  be  entered  in  the  books  of  ac- 
count only  such  items  as  affect  the  revenues  and  conducting  ex- 
penses. The  "Trust  Account"  is  a  record  of  the  revenues  arising;, 
from  this  department  of  the  companies  services,  etc. 


APPENDIX* 


BANKING  AS  A  PROFESSION   FOR  YOUNG  MEN,  293 


BAJTETNG  AS   A   PBOPESSION   FOB  YOUHQ  MEN.* 

It  is  generally  true  in  mercantile  life  and  in  the  learned  profes- 
sions, and  always  true  in  banking,  that  in  order  to  insure  success, 
a  young  man  must  have  some  end  in  view  towards  which  all  his 
exertions  shall  tend.  Every  young  man  should  have  some  well-de- 
fined plan  of  life  marked  out  before  him,  and  all  his  energies  should 
be  directed  to  the  realization  of  it. 

Many  have  some  general  object  in  view,  such  as  getting  rich,  or 
getting  beyond  hard  work  at  some  time  of  their  life  ;  while  but  few 
have  a  specific,  noble  mark,  towards  which  they  are  aiming.  This  is 
the  reason  why  there  are  so  many  second-rate  young  men  to  be 
found  in  every  profession,  and  why  so  many  men  of  riper  years  are 
neither  one  thing  nor  another  —  strung  up  and  dangling  between 
something  and  nothing  —  breathing  in  the  unsatisfying  east  wind  of 
a  glorious  mediocrity,  and  hoping  that  an  undefined  something  may 
turn  up  one  of  these  days,  which  shall  relieve  them  and  place  them 
in  an  undefined  blissful  somewhere.  According  as  a  young  man 
aims,  so  will  his  arrow  fly.  According  to  the  energy  with  which 
he  strives,  and  the  talents  which  he  brings  to  bear,  so  will 
he  rise.  But  what  are  the  objects  to  be  aimed  at  by  a  young 
banker?  For  what  end  should  he  strive,  and  what  is  there  ahead  to 
reward  his  toil?  What  are  the  advantages  of  the  banker's  profes- 
sion? The  advantages  enjoyed  by  persons  in  this  profession,  for  the 
attainment  of  everything  desirable  in  life,  are  very  great,  and  the 
inducements  held  out  by  the  profession  to  ambitious,  enterprising 
young  men,  are  enough  to  satisfy  any  reasonable  person.  A  high 
eminence  and  a  name  are  as  sure  of  attainment  as  in  any  other 
business. 

It  should  be  the  object  of  every  young  man  who  enters  the  pro- 
fession, to  become  thoroughly  acquainted  with  every  part  of  it. 
He  should  strive  to  become  familiar  with  it  all,  from  the  great 
general  principles  down  to  the  minutest  detail.  While  in  a  sub- 
ordinate situation,  he  should  not  be  satisfied  with  merely  doing  the 


*  The  excellent    ideas  contained  in  this    chapter  first  appeared  in    the  Banker's 
nearly    thirty-five    years    ago.      Time  has   not  impaired  their  value.      They    were  written  by 
«George  P.  Bissell,  a  banker   in  Hartford,  Conn. 


294  PRACTICAL    BANKING. 

work  which  is  laid  upon  him,  but  while  in  this  situation,  he  should 
be  fitting  himself  for  the  next  place  above  him.  His  aim  should 
be  to  rise  as  rapidly  as  is  consistent  with  a  healthy  growth,  till 
he  has  placed  himself  at  the  head  of  an  institution;  and  then  his 
ambition  should  be,  to  be  first  in  his  profession,  to  reach  an  emi- 
nence and  carry  his  bank  with  him.  To  aim  merely  at  a  cashier- 
ship,  or  to  be  president,  is  a  low  aim;  but  to  be  known  as  the 
best  cashier  or  president  in  the  country,  is  an  aim  well  worthy  of 
any  man,  and  is  the  only  one  which  should  satisfy  a  young  man 
entering  this  profession.  A  young  man  can  rise  as  rapidly  and  as 
surely  in  this,  as  in  any  other  profession;  he  can  also  rise  as  slowly 
and  as  surely,  and  he  can  remain  as  immutably  stationary,  as  in 
any  other  calling  under  heaven.  There  are  plenty  of  stopping  places 
adapted  to  all  phases  of  mediocrity,  and  these  stopping  places  are 
very  tenacious  of  their  prey.  A  man  once  fixed  in  any  of  them, 
is  there  for  life. 

No  one  should  enter  the  business  unless  he  is  determined  to 
reach  the  top  of  the  ladder.  If  a  man  is  not  somewhat  ambitious, 
and  unless  he  can  see  through  a  pretty  long  transaction,  he  gener- 
ally becomes  a  fixture.  Any  one  can  tell,  in  the  course  of  his  first 
year,  whether  he  is  adapted  to  the  business,  and  whether  he  will 
succeed.  If  a  )roung  man  begin  to  feel  the  trap-door  of  a  second- 
rate  station,  or  a  subordinate  clerkship,  pressing  him  down  as  he 
is  trying  to  ascend  the  ladder,  let  him  make  a  desperate  effort  to 
raise  it;  but  if  he  cannot  succeed,  let  him  at  once  betake  himself 
to  some  other  ladder,  under  some  other  opening. 

Let  no  one  enter  this  profession  with  the  expectation  of  becom- 
ing suddenly,  or  even  speedily,  rich,  for  this  expectation  will  be 
disappointed ;  neither  let  any  entering  the  profession  be  afraid  of 
ever  becoming  poor.  Labor  is  generally  liberally  rewarded,  and 
talent  is  generally  appreciated.  There  are  some,  it  is  true,  in  banks, 
who  receive  but  small  pay,  and  who  delve  for  years  in  subordinate 
situations,  but  such  are  generally  men  not  largely  endowed  with 
talent,  whose  aim  is  nowhere,  and  who  consequently  are  paid  about 
as  much  as  they  are  worth.  A  man  of  talents  and  energy  is  al- 
ways sure  of  good  pay;  sufficient  for  all  the  expenses  attendant 
upon  a  genteel  style  of  living,  besides  a  handsome  margin  for  mod- 
erate investment  for  the  satisfaction  of  that  great  maelstrom  ac- 
count generally  known  as  "  sundries."  He  is  always  sure  of  a  com- 
petence. 

A  competence  is  all  we  can  enjoy, 

O  be  content  where  Heaven  can  give  no  more. 

It  is  impossible  to  name  exactly  the  amount  of  salary  a  young 
man  may  expect  to  receive.  It  depends  a  little  upon  the  locality 
and  size  of  the  bank,  and  a  great  deal  upon  what  the  young 
man  himself  is.  A  moderate  young  man  in  a  moderately-sized  bank, 


JANKING  AS  A   PROFESSION   FOR  YOUNG  MEN.  295 

generally  has  a  salary  very  nicely  fitted  to  him,  while  an  energet- 
ic, talented  young  man,  in  a  good  institution,  can  be  the  recipi- 
ent of  almost  any  sum  that  he  has  the  face  to  ask  for.  Some  idea 
upon  which  to  base  expectations  may  be  formed  from  a  knowledge 
of  the  fact,  that  tellers'  salaries  range  from  $500  to  $1,800  per 
annum ;  cashiers'  from  $  800  to  $  5,000,  and  presidents'  about  the 
same.*  In  some  banks  the  office  of  president  is  a  mere  sinecure;  in 
such  banks  the  president  receives  no  salary,  but  takes  it  out  in 
honor.  Let  a  young  man  fix  in  his  mind  the  salary  that  he  thinks 
he  ought  to  be  worth,  and  then  work  for  it,  and  he  will  generally 
receive  it.  A  banker,  from  the  nature  of  his  position  in  the  finan- 
cial world,  has  often  opportunities  thrown  in  his  way  for  making 
money  besides  his  salary,  but  this  should  not  be  counted  upon  by 
a  young  man,  for  it  is  very  uncertain.  If  a  young  banker  is  work- 
ing for  a  name,  a  reputation,  and, — which  follows  as  a  matter  of 
course, — for  a  high  salary,  his  best  course  is  to  keep  himself  free 
from  anything  like  speculating,  shaving  or  dabbling  in  stocks.  He 
should  engage  in  no  other  business  but  his  bank,  and  he  should 
keep  himself  as  far  as  possible  from  any  course  in  which  there  is 
the  least  possibility  of  becoming  in  any  way  involved  or  embarrassed. 

There  is  less  anxiety  of  mind  in  this  profession  than  in  most 
others.  It  is  true  that  the  banker  has  a  great  many  cares,  and  his 
mind  has  about  as  much  as  it  can  well  do,  but  there  is  none  of 
that  terrible  anxiety  of  mind  which  waits  upon  the  merchant  who 
has  his  warehouses  full  of  goods,  prices  falling,  and  money  scarce. 
The  merchant  at  times  is  elated  by  prosperity,  and  again  he  is 
weighed  down  by  anxiety,  and  either  extreme,  or  the  transition 
from  one  to  the  other  is  very  wearing;  but  the  banker  has  at 
all  times  enough  to  think  of.  He  is  never  troubled  with  the 
alternations  of  excitement  and  depression ;  his  mind  is  constantly 
active,  not  overtasked,  and  consequently  its  action  is  always  healthy. 
During  business  hours  he  works  hard,  but  at  night  he  can 
throw  off  all  care,  and  devote  himself,  if  he  choose,  to  literary  pur- 
suits, and  to  self-improvement. 

There  are  times  in  great  commercial  distress  when  confidence  is 
destroyed,  that  banks  are  crowded  and  pressed  very  hard ;  but  with 
ordinary  management  they  can  be  carried  safely  through.  No  bank 
ever  failed  where  there  was  good  management  and  no  speculation. 
All  that  is  required  is  caution  and  prudence:  but  the  most  inces- 
sant exercise  of  caution  and  prudence  will  not  amount  to  that  anxi- 
ety which  produces  sleepless  nights. 

A  banker  can  have  a  great  deal  of  time  to  devote  to  mental 
culture,  and  to  the  acquisition  of  useful  information.  He  generally 
has  his  evenings  to  himself  free  from  care,  and  much  can  be  done 

*  Since  this  was  written  these  salaries  have  increased  until  they  are  now  (1884)  about 
doubled. 


296  PRACTICAL    BANKING. 

t>y  the  improvement  of  such  hours.  His  business  is  of  such  a 
nature  that  this  is  not  incompatible  with  being  first  in  his  profes- 
sion. There  are  some,  however,  who  work  night  and  day,  and  make 
slaves  of  themselves,  but  such  are  generally  men  who  care  but  little 
for  mental  improvement,  and  whose  whole  aim  seems  to  be  to  re- 
main in  a  bank,  and  yet  realize  a  treadmill.  Let  them  work. 
They  have  the  satisfaction  of  knowing  that  they  are  not  always  the 
best  bankers.  The  best  in  any  profession  are  those  who  have  room 
enough  in  their  brains  for  more  than  one  idea,  and  who  take  time 
for  something  besides  dollars  and  cents.  A  banker  can,  if  he  will 
apply  himself,  so  cultivate  his  mind  that  he  will  shine  as  brightly 
in  social  life,  and  appear  as  well,  even  in  literary  circles,  as  men  of 
liberal  education. 

These  are  some  of  the  advantages  of  the  banker's  profession,  and 
these  are  some  of  the  inducements  which  are  held  out  to  those 
who  wish  to  enter  it. 

A  young  man  in  order  to  succeed  should  maintain  a  straightfor- 
ward course,  both  in  his  own  affairs,  and  in  the  affairs  of  the 
t>ank;  he  should  be  possessed  of  a  clear  head,  a  mind  not  easily 
carried  away  by  tempting  offers  for  speculation,  a  disposition  to  re- 
ceive very  fair  stories  with  considerable  allowance ;  he  should  have 
urbanity  combined  with  firmness  and  decision,  and  above  all,  he 
.should  have  a  deep-seated,  stubborn  passion  for  good  security. 

These  are  the  traits  which  are  absolutely  necessary  to  insure  success 
in  banking.  Without  them,  no  young  man  should  enter  a  bank. 
Without  them,  a  young  man  should  rather  take  himself  to  some 
•one  of  the  other  professions,  where  even  a  fool  can  sometimes  make 
a  happy  hit.  In  banking  there  are  no  happy  hits  to  be  made ;  the 
life  is  one  long,  dead  pull  upon  talent,  energy,  and  perseverance. 


ADVICE  TO   DEPOSITORS. 


297 


ADVICE   TO   DEPOSITORS. 

If  you  are  a  stranger  to  the  officers,  and  wish  to  open  an  account, 
get  some  respectable  person  who  is  known  to  them  to  introduce  you 
either  to  the  President  or  Cashier.  Do  not  ask  him  to  vouch  for 
anything  beyond  your  integrity  and  fairness  in  dealing.  Tell  your 
own  story  about  capital,  business,  property,  and  other  matters 
which  pertain  to  your  commercial  prospects — and  exaggerate  noth- 
ing. There  is  no  humbug  that  will  recoil  upon  yourself  so  surely 
as  an  attempt  to  palm  off  big  tales  on  a  bank  officer.  Your  deposit- 
tickets,  your  checks,  your  bills  receivable,  your  endorsements,  and 
your  ledger  account,  make  together  a  history  that  dispels  all  shams, 
and  leaves  little  to  say.  A  man  who  begins  with  an  exaggerated 
account  of  himself  is  measured  by  it  afterwards,  and  appears  rela- 
tively small. 

Borrow  no  money  of  your  neighbors  to  swell  your  first  deposits. 
This  is  a  common  practice,  with  the  idea  that  it  will  make  a  favor- 
able impression  on  the  officers.  They  see  through  it  at  once,  and 
take  it  as  a  proof  of  weakness. 

Never  try  to  bargain  for  special  indulgences,  such  as  the  certifi- 
cation of  your  checks  before  your  deposit  is  made,  or  the  discount 
of  your  paper  by  the -officers  without  its  submission  to  the  Board  of 
Directors.  The  character  of  your  account  will  settle  these  matters 
much  more  satisfactorily  to  all  parties. 

Let  your  intercourse  with  the  officers  be  candid  and  courteous, 
and  be  sparing  in  your  personal  solicitation  for  discounts.  Choose 
the  earlier  hours  of  the  day  for  your  interviews,  and  especially 
avoid  the  last  hour  before  three  o'clock. 

Write  your  signature  with  the  same  freedom  that  you  do  in  your 
own  office,  and  never  vary  the  style  of  it. 

Teach  your  clerks  to  use  always  the  deposit-tickets  furnished  by 
the  bank,  to  examine  the  date  and  endorsement  of  every  check, 
and  also  to  see  that  the  writing  of  the  amount  corresponds  with  the 
figures.  Instruct  them  to  learn  and  to  follow  the  rules  of  the 
bank  with  respect  to  getting  checks  certified  before  deposit. 

Make  your  deposit  as  early  in  the  day  as  possible.  If  you  are 
accustomed  to  have  many  checks,  or  large  packages  of  bank  bills, 


rr8  PRACTICAL    BANKING. 

it  is  better  to  make  two  deposits — one  at  an  early  hour — than  to 
hand  in  all  at  once  just  at  three  o'clock.  Never  change  checks 
with  other  people  merely  to  make  larger  figures.  It  causes  need- 
less labor  to  the  bank  clerks,  makes  you  responsible  for  the  debts 
of  others,  and  is  a  real  prejudice  to  your  credit. 

Never  try  to  put  in  your  deposit  before  those  in  advance  of  you, 
but  take  your  place  in  the  line,  and  wait  your  turn  patiently. 
Never  make  deposits  without  your  bank-book,  if  you  can  help  it. 
Avoid  all  unnecessary  conversation  with  the  clerks,  especially  with 
the  tellers. 

Never  get  angry  if  the  paying  teller  examines  your  account  be- 
fore certifying  your  check ;  nor  if  he  keeps  you  waiting  a  few  sec- 
onds before  he  can  pay  it. 

Make  it  an  invariable  rule  to  give  checks  only  out  of  your  own 
check-book,  and  at  your  own  office.  When  you  want  the  endorse- 
ment of  the  person  to  whom  you  give  it,  if  he  wishes  to  draw  the 
money,  let  him  endorse  the  check  in  your  presence,  and  write  your 
own  name  below  his  signature,  to  assure  the  teller  that  it  is  right. 

Never  give  out  checks  dated  ahead.  When  you  have  need  to  cut 
checks  out  of  the  end  of  your  check-book,  mark  in  the  margin 
what  they  are  for — to  supply  duplicates,  or  otherwise.  Keep  your 
check-books  out  of  the  sight  and  reach  of  strangers.  Never  give  a 
stranger  a  check  unless  you  have  some  evidence  that  he  is  not 
seeking  it  for  fraudulent  purposes.  Never  draw  checks  against  your 
account,  on  the  ground  that  you  have  sent  some  abroad  that  will 
not  return  immediately.  Always  consider  a  check  paid  when  you 
give  it  out. 

Never  attempt  to  pay  a  note  with  an  uncertified  check,  at  a  bank 
where  you  keep  no  account.  If  you  make  your  promissory  notes 
payable  at  a  bank,  give  the  paying  teller  a  list  of  them  on  Monday 
morning  for  the  current  week. 

When  you  want  notes  discounted,  offer  them  on  the  regular  days, 
and  in  good  season  for  the  clerk's  convenience.  Never  call  on  bank 
officers  to  discount  notes  between  the  board  meetings,  if  you  can 
wait  until  the  following  discount  day.  Do  not  put  off  the  offering 
of  notes  for  discount  until  the  last  day  of  your  need.  It  is  better 
to  keep  from  ten  days  to  a  fortnight  ahead,  and  to  let  your  bal- 
ances remain  in  the  bank  until  you  require  them.  The  loss  of  in- 
terest is  very  trifling  at  best.  You  lose  more  by  anxiety  and  unfit- 
ness  for  business. 

When  you  want  your  bank-book  balanced,  or  entries  made  in  it, 
apply  to  the  bookkeeper  early  in  the  day.  Never  ask  a  service  of 
him  later  than  one  o'clock  if  you  can  wait  till  the  next  morning. 
Do  not  allow  your  book  to  run  too  long  without  being  balanced, 
and  when  balanced,  examine  your  canceled  checks  without  delay. 


ADVICE  TO   DEPOSITORS.  299 

If  the  bank  ledger  shows  a  larger  balance  in  your  favor  at  any 
time,  than  your  own  check-book,  acquaint  the  bookkeeper  with  it 
immediately.  As  you  value  your  credit  with  the  bank,  never  take 
advantage  of  deposits  wrongly  entered  to  your  account,  but  let  your 
dealings  be  strictly  honorable. 

If  you  have  any  cause  of  complaint  against  the  clerks,  state  it 
directly  to  the  officers.  The  clerks  act  under  their  instructions, 
which  they  dare  not  disobey. 

The  bookkeeper  is  the  proper  person  to  apply  to,  to  know  if  col- 
lection notes  are  passed  to  your  credit. 

The  collection  clerk  will  inform  you  of  the  maturity  of  notes 
for  a  future  time.  In  the  case  of  discounted  notes  apply  to  the 
discount  clerk.  The  discount  clerk,  or  the  collection  clerk,  will 
commonly  tell  the  exchange  or  charges  for  collecting  foreign  paper. 

When  you  have  notes  to  send  abroad  for  collection,  deposit  them 
in  ample  time  for  deliberate  record  and  transmission  by  the  bank. 

If  the  drawers  of  any  notes  lodged  as  collateral  to  loans  or  dis- 
counts should  fail,  do  not  wait  for  the  bank  officers  to  discover 
it,  but  substitute  good  notes  for  them  without  delay. 

The  observance  of  these  rules,  and  such  others  as  may  be  sug- 
gested by  your  own  observation,  will  be  a  great  economy  of  time 
to  yourself  as  well  as  to  the  bank  clerks,  and  promote  your  real 
credit  with  the  institution. 


300 


PRACTICAL    BANKING. 


SUGGESTIONS    TO  YOUNG  CASHIERS  ON  THE   DUTIES 
OP  THEIR  PROFESSION.* 

Banking  has  become  a  part  of  the  very  framework  of  our  system 
of  business.  Even  Mr.  Calhoun  said,  as  long  ago  as  1816,  when 
the  whole  banking  capital  in  the  United  States  was  only  eighty 
millions  of  dollars,  that  "  the  question  whether  banks  are  favorable 
to  public  liberty  and  prosperity  was  one  purely  speculative.  The 
fact  of  the  existence  of  banks,  and  their  incorporation  with  the 
commercial  concerns  and  industry  of  the  nation,  prove  that  inquiry 
to  come  too  late.  The  only  question  was,  on  this  hand,  under 
what  modifications  were  banks  most  useful,"  etc.  Banks  now  exist, 
in  some  form  or  other,  everywhere,  and  will  continue,  probably,  as 
long  as  property  shall  be  bought  and  sold  on  credit.  In  all  com- 
ing time,  therefore,  we  are  to  have  a  class  of  men  to  deal  in 
money,  in  promissory  notes,  and  foreign  and  domestic  exchange.  The 
avocation  has  ever  been  honorable,  to  the  last  degree  responsible, 
and  exposed  to  many  and  to  peculiar  temptations. 

The  world,  seemingly  more  inexorable  with  our  profession  than 
with  others,  deals  out  its  direct  maledictions  upon  those  of  us 
who  err,  and  will  hardly  forgive  the  managers  of  a  broken  bank, 
or  the  officer  whose  "cash  is  short,"  even  when  there  is  no  other 
guilt  than  credulity,  too  easy  good  nature,  or  incapacity.  To  stand 
upon  our  defence  against  unjust  accusations,  and  to  do  what  we 
can  to  diminish  the  causes  of  corporate  and  of  individual  delin- 
quency, are  duties  which  we  owe  to  ourselves  and  to  those  who 
are  to  succeed  us.  Dispersed,  as  we  are,  over  a  vast  extent  of 
country,  we  can  best  correct  public  sentiment,  and  afford  counsel 
and  admonition  to  one  another,  as  well  as  render  our  knowledge  of 
banking  available  as  common  stock,  by  means  of  the  work  estab- 
lished for,  and  devoted  to,  our  benefit. 

Banks,  with  us,  both  public  and  private,  differ — as  none  need  to 
be  told — in  many  things  from  those  of  England  and  of  Continental 
Europe.  It  is  known,  also,  that  our  system  is  riot  perfect,  and  that 
essential  improvements  can  be  made  in  it.  Hence,  whatever  the 
value  of  essays  upon  foreign  banking,  papers  devoted  to  our  own 
are  far  more  useful  to  us,  regarded  as  a  class;  and  hence,  too,  the 

*  This  essay,  by  Lorenzo  Sabine,  of  Framingham,  Mass.,  was  originally  published  in  the 
Banker's  Magazine  in  January,  1852.  A  few  changes  have  been  made  to  adapt  it  to  the 
present  work. 


SUGGESTIONS  TO  YOUNG  CASHIERS.  301 

necessity  for  a  free  interchange  of  thought  by  bankers  in  different 
parts  of  the  Union. 

I  pass  now  to  topics  immediately  connected  with  the  duties  of  a 
Cashier.  The  limits  of  this  essay  do  not  admit  of  elaborate  reason- 
ing, but  demand,  indeed,  that  mere  suggestions  shall  be  made  with 
the  brevity  of  proverbs.  I  may  be  permitted,  then,  to  address  my- 
self to  the  young  officer,  directly,  and,  as  it  were,  personally. 

You  are  to  lead  a  life  so  confined,  sedentary,  and,  in  some  re- 
spects, so  mechanical,  that,  unless  you  observe  great  care,  you  will 
become,  in  the  lapse  of  years,  a  sort  of  machine  for  computing 
discounts,  counting  money,  writing  letters,  and  keeping  books.*  You 
are  to  transact  business,  and  to  have  a  constant  intercourse,  with 
men  of  every  shade  of  character,  of  every  variety  of  disposition, 
and  of  every  degree  of  intelligence.  Your  temper  is  to  be  tried  by 
interruptions  at  the  most  unseasonable  moments,  to  attend  to  the 
calls  of  the  impatient,  or  to  answer  the  inquiries  of  the  ignorant 
or  inquisitive.  You  are  to  be  tempted  to  embark  in  speculations 
in  stocks :  to  be  solicited  to  allow  overdrawings  and  other  irregu- 
larities by  the  companions  of  your  social  hours,  and  it  may  be,  by 
one  or  more  of  your  own  directors ;  and  you  are  to  have  the 
same  domestic  cares  and  afflictions,  the  same  personal  aches  and 
pains  as  other  men ;  and  yet  you  are  expected  to  be  ever  at  your 
post,  to  be  ever  courteous,  to  stand  fast  in  your  integrity,  and  to 
seem  cheerful,  and  even  happy.  In  a  word,  and  as  Girard  said,  at 
the  decease  of  his  old  and  faithful  cashier,  " the  bank  must  go  on" 
whatever  your  private  griefs  or  individual  disabilities.  Your  position 
is  thus  one  of  much  difficulty,  responsibility  and  peril ;  and  you 
need  a  knowledge  of  the  laws  of  your  physical  being,  the  counsel 
of  wise  friends,  strict  and  daily  self-examination,  and  deep  religious 
principle,  to  enable  you  to  sustain  it  in  health  and  honor.  But  be 
of  good  cheer;  be  a  true  man,  and  you  will  overcome  every  ob- 
stacle in  the  way  of  a  long  and  of  a  useful  life. 

Your  bank  has  secrets ;  and,  that  they  be  kept  inviolable,  adopt 
a  rule  to  speak  of  its  affairs  only  to  persons  connected  with  you 
in  its  management. 

You  should  embrace  every  opportunity  to  acquire  information  as 
to  the  standing  of  your  customers;  and  whatever  is  imparted  to 
you  on  the  subject,  whether  in  confidence,  or  otherwise,  should  be 
communicated  to  your  directors,  and  to  them  alone. 

*  Every  person  of  observation  will  attest  to  the  need  of  the  caution  in  the  text.  Long  and 
close  application  to  one  branch  of  business,  and  the  habit  of  being  at  one  place  for  a  course 
of  years,  produce  wonderful  transformations  in  the  character.  The  case  of  Mr.  Rippon,  the 
late  chief  Cashier  of  the  Bank  of  England,  furnishes  an  illustration  well  worth  citing.  He 
was  connected  with  that  institution  for  more  than  half  a  century,  and  asked  but  for  a  single 
leave  of  absence  from  his  post  during  the  entire  period,  and  in  this  instance,  even,  he  ap- 
plied at  the  suggestion  of  his  physician,  on  the  ground  of  ill  health.  Permission  was  granted, 
and  our  bank  officer  departed  from  London  to  be  absent  two  weeks.  But  the  country  was 
without  charms .  idleness  preyed  upon  his  spirits,  and  the  habit  of  years  was  so  strong  that, 
at  the  end  of  three  days,  he  returned  to  the  bank,  solely  to  become  happy  again. 


302  PRACTICAL    BANKING. 

You  should  become  acquainted  with  the  laws  relative  to  bank- 
ing, and  especially  with  those  of  your  own  State;  and  should  be 
familiar  with  some  work  which  treats  of  notes  and  bills,  of  the 
liabilities  of  sureties,  drawers  and  indorsers.  I  recommend,  as  the 
easiest  way  to  obtain,  and  to  retain,  knowledge  in  these  particu- 
lars, that  you  make  a  manual,  or  brief  digest,  with  marginal  ref- 
erences to  the  authorities  which  you  consult.  The  best  books  are 
Daniel  on  Negotiable  Instruments,  and  Morse  on  the  Law  of  Banks 
and  Banking.  To  master  these  works,  or  even  to  obtain  common 
knowledge  of  the  immense  learning  which  they  contain,  will  require 
time — much  time.  But  the  leading  principles  applicable  to  promis- 
sors  and  other  parties  to  commercial  paper,  are  easily  fixed  in  the 
memory,  and  no  time  should  be  lost  in  consulting  the  latter  treatise, 
at  least.  I  recommend  to  the  young  cashier  to  devote  a  part  of 
his  leisure  to  professional  reading  of  a  more  general  nature.  The 
history  of  the  system  of  credit  is  not  only  curious,  but  interesting 
and  instructive.  Strangely  enough,  as  he  will  find,  banking  owes  its 
origin  to  the  Crusades,  for  the  earliest  institutions  of  which  there 
is  any  account  was  a  mere  bank  of  deposit,  established  at  Venice, 
late  in  the  twelfth  century,  for  the  purpose  of  aiding  those 
who  fought  to  win  the  Holy  Land  from  its  unholy  possessors. 
Such  was  the  first  element,  and  the  degree  of  security  and  facility 
of  commercial  transactions  of  the  period  may  be  seen  in  the  fact 
that,  in  England,  contracts  between  individuals  were  discharged  by 
payments  in  cattle,  horses,  dogs,  and  even  hawks ;  and  that  rents, 
fines,  and  taxes  due  the  crown  were  paid  in  the  same  kinds  of 
property,  in  products  of  the  soil,  and  in  merchandise  generally.  In 
a  word,  the  idea  of  paper  money  based  on  the  precious  metals,  or 
on  personal  estate  and  credit,  or  on  lands,  had  not  been  conceived, 
we  may  fairly  conclude,  anywhere.  Next,  if  the  notes  of  my  own 
reading  be  accurate,  and  equally  strange,  we  hear  of  some  sort  of 
paper  credit,  early  in  the  thirteenth  century,  not  in  any  trading 
country  of  Europe,  but  in  far-off,  and,  as  we  commonly  say,  in  bar- 
barous China.  So,  again,  toward  the  close  of  the  last-mentioned  cen- 
tury, we  are  told  that  the  hated  and  hunted  Jews  and  Lombards 
invented  the  bill  of  exchange,  which  afforded  means  for  the  silent 
and  secret  transfer  of  funds  from  country  to  country,  to  the  in- 
finite discomfiture  of  robber  kings  and  of  robber  outlaws.  Next, 
probably,  in  chronological  order,  was  the  promissory  notes,  which 
strange  device,  grave  and  learned  judges,  in  solemn  wig  and  er- 
mine, dared  at  length  to  pronounce  to  worn  and  weary  litigants, 
might,  if  traffickers  so  willed,  pass  current  from  one  person  to 
another,  and  be  lawfully  collected  by  the  final  owner.*  Still,  again, 

*  As  late  down  as  the  reign  of  William  and  Mary,  the  courts  of  England  refused  to  con- 
sider an  inland  bill  of  exchange  a  legal  instrument;  nor  was  it  until  the  time  of  Anne, 
that  a  promissory  note,  in  the  hands  of  an  indorsee,  could  be  collected  by  law,  of  the  maker. 


SUGGESTIONS  TO   YOUNG  CASHIERS.  303 

about  the  middle  of  the  fourteenth  century,  we  meet  with  the  ori- 
gin of  public  scrip  in  the  governmental  certificates  of  Florence, 
which,  I  suppose,  were  the  first  ever  issued  in  Europe.  Thus,  we 
have  five  elements  in  modern  banking.  Two  others,  namely,  those 
of  discount  and  circulation,  were  yet  wanting.  Neither  power  was 
conferred  upon  the  Bank  of  Amsterdam,  which,  founded  near  the 
opening  of  the  seventeenth  century,  was  designed  merely,  as  it  would 
seem,  to  check  the  evils  of  a  clipped  and  worn  metallic  currency.  Nor 
was  the  Bank  of  Hamburg,  which  was  established  immediately  after, 
hardly  more  than  an  institution  for  deposit  and  transfer.  In  the 
progress,  however,  of  civilization,  or  commercial  dealing  and  necessity, 
we  come  at  last,  and  toward  the  close  of  the  seventeenth  century,  to 
the  Bank  of  England,  which  was  invested  with  authority  to  receive 
deposits,  to  buy  and  sell  exchange,  to  aid  in  the  management  of 
public  securities,  to  discount  promissory  notes,  and  to  issue  a  paper 
currency.  And  so  it  appears  from  this  rapid  view,  that  more  than 
five  hundred  years  elapsed  before  all  the  elements  of  modern  bank- 
ing are  combined,  arranged,  and  reduced  to  a  system  in  which 
statesmen  and  merchants  reposed  confidence. 

The  young  cashier  having,  by  his  researches,  convicted  me  of 
inaccuracy,  or  having  established  the  truth  of  the  foregoing  out- 
lines of  bank  history,  may,  as  opportunity  occurs,  pursue  the  sub- 
ject still  further.  The  first  charter  of  the  Bank  of  England  is  ac- 
cessible, and  he  may  study  it  with  profit,  and  to  ascertain  the  im- 
mense progress  which  has  been  made  in  the  principles  of  banking, 
whether  as  relates  to  rights  of  stockholders  or  to  public  conve- 
nience and  safety.  He  will  find  valuable  lessons  in  the  legislation 
of  his  own  country;  in  the  issue  of  paper  money  prior  to  the  rev- 
olution, which  at  times  flooded  the  colonies,  and  which  in  spite  of 
the  clamors  of  our  fathers,  was  suppressed  by  Parliament ;  the  mar- 
velous tales  and  traditions  which  have  come  down  to  us  of  the 
never-to-be-forgotten  "continental  money,"  without  which  the  bonds 
of  colonial  vassalage  would  not  have  been  broken  when  and  as 
they  were ;  in  the  earlier  charters  of  the  different  State  Govern- 
ments, and  in  the  two  charters  of  Congress  of  the  great  National 
institution  which  has  now  ceased  to  exist. 

This  general  inquiry  concluded,  he  will  have  improved  his  own 
mind,  and  be  ready  to  meet  and  to  reason  with  those  who,  be- 
cause the  system  has  not  been  perfected  in  a  century  and  a-half 
(dating  from  the  establishment  of  the  Bank  of  England),  demand 
its  entire  abolition,  or  at  least  such  changes  as  would  render  it 
powerless  for  good,  alike  to  individuals  and  to  communities.  He 
can  say  and  prove  that  CREDIT,  wide,  liberal,  beneficent  credit,  be- 
longs to  the  era  of  liberty,  and  that  it  was  unknown  even  in  free 
England  until  after  the  expulsion  of  the  Stuarts,  and  until  the  rev- 
olution there  had  secured  personal  freedom.  He  may  stand  upon 


304  PRACTICAL    BANKING. 

the  emphatic  declaration  of  a  great  statesman,*  that  the  system 
of  credit,  as  it  now  prevails,  is  the  vital  air  of  commerce,  and  that 
"it  has  done  more,  a  thousand  times,  to  enrich  nations  than  all 
the  mines  in  all  the  world."  He  should,  indeed,  admit  that  its 
fluctuations,  its  ebbs  and  flows,  sometimes  cause  desolation  and  ruin; 
yet  he  should  not  fail  to  insist  that  good  and  wise  men  steadily 
strive  to  improve  it — that,  as  sweeping  conflagrations  allow  of  the 
straightening  and  widening  of  streets,  and  as  disasters  in  traveling 
by  steam  suggest  more  careful  management  and  better  machinery, 
so  do  bank  failures  and  the  delinquencies  of  bank  officers,  however 
appalling  the  circumstances  at  the  moment,  serve  to  discover  and  to 
apply  new  checks  and  new  remedies. 

If  your  bank  is  old  enough  to  have  been  through  "  a  crisis,"  and 
if  you  have  not  served  in  it  as  an  inferior  officer,  you  have  much 
to  learn  of  its  past  business.  Such  an  institution,  for  example,  has 
a  "suspended  debt"  account,  or  at  best  overdue  paper  secured  by 
mortgage  or  other  collateral ;  and  assets  of  this  description  always 
have  a  history,  and  sometimes  a  very  intricate,  a  very  perplexing 
one.  But  you  must  become  master  of  that  history.  Directors  change 
every  year ;  and  in  a  little  time,  all  who  were  at  the  "  Board "  when 
this  class  of  paper  was  taken  will  have  vacated  their  seats;  while, 
then,  some  are  still  in  the  direction,  make  written  memoranda  of 
the  principal  facts. 

Let  it  be  manifest  to  your  associates  and  stockholders,  that  you 
feel  an  interest  in  everything  which  relates  to  their  welfare.  To 
work  the  whole  of  your  capital  and  of  your  deposits,  to  keep  both 
actively  employed  at  all  times,  and  yet  to  be  always  able  to  meet 
the  demands  on  you,  require  great  wisdom ;  and  the  most  skillful 
and  experienced  financiers  sometimes  find  themselves  at  fault  for  the 
moment.  Your  duty  requires  continual  experiments  to  effect  this 
great  object. 

Need  I  suggest  the  benefits  of  a  fixed  system,  and  of  method, 
even  in  matters  seemingly  of  little  consequence  ?  Everybody  finds 
— as  seamen  have  it — that  "a  stern  chase  is  a  long  chase."  The 
business  of  to-day  should  never  be  deferred  till  to-morrow.  Answer 
letters,  and  file  papers,  at  the  instant.  Remember  everything,  if 
possible ;  but  trusting  to  memory  in  nothing :  let  your  books  con- 
tain a  record  of  all  transactions.  Allow  no  outstanding  bills  against 
the  bank ;  and  have  a  voucher  for  the  smallest  item  charged  to 
"  Expense  Account." 

You  can  be,  and  you  ought  to  be,  ready  for  an  "  examination "  by 
the  "  Commissioners,"  or  other  functionaries  of  the  Government,  and 
of  your  own  "  Board,"  without  previous  notice,  and  without  the 
slightest  special  preparation.  In  fine,  close  your  vault  daily  with 

*Mr.  Webster. 


SUGGESTIONS   TO   YOUNG   CASHIERS.  305 

the  reflection  that  no  act  has  been  neglected,  and  that,  if  sickness 
or  death  should  occur  "  the  bank  can  go  on  "  with  no  loss  to  your 
family,  sureties,  or  stockholders.  Do  not  smile,  if  I  add,  that  your 
banking-rooms  should  be  swept,  and  your  desks  and  counters  be 
dusted  daily ;  that  one  "  slut-hole "  is  ample  for  all  the  twine 
and  waste-paper;  and  that  the  accumulation  of  official  papers  and 
memorandums  in  your  private  drawer  will  cause  both  you  andl 
your  associates  serious  delays  and  much  inconvenience. 

Panics  and  pressures  are  as  certain  in  banking  as  storms  in  winter.. 
When  either  exist,  firmness  and  courage,  if  not  really  possessed,, 
must  be  assumed.  You  are  presumed  to  know  the  nature  and  ex- 
tent of  your  resources  under  all  circumstances,  and  at  periods  of 
general  distrust  especially;  and  if  the  amount  of  those  immediately 
available  are  insufficient  for  every  possible  call  upon  you,  thus  advise 
your  directors  without  delay. 

A  knowledge  of  human  character  is  indispensable.  Study  it.  The 
"  actions,  looks,  words,  and  steps "  of  your  customers  "  form  an  al- 
phabet : "  and  your  "  eyes  are  spectacles  to  read  others'  hearts  with." 
Careful,  close,  and  continued  observations  will  enable  you  to  detect 
a  counterfeit  man  as  readily  as  you  now  do  a  counterfeit  bank- 
note. My  own  experience  is,  that  those  who  change  countenance, 
or  the  weight  of  the  body  from  one  foot  to  the  other,  when  meet- 
ing a  full,  searching  and  fixed  gaze,  are  not  truthful ;  that  those 
who  ask  for  additional  accommodations,  prefacing  the  request  with 
a  story  divided  into  acts  like  a  drama,  are  already  bankrupt;  and 
that  those  who  petition  in  whispers,  in  an  unnatural  tone  of  voice, 
in  a  cant,  or  a  whine,  are  hypocrites.  Some  years  hence,  I  shall 
be  glad  to  ascertain  how  nearly  your  experience  accords  with 
mine. 

You  should  be  courteous  and  respectful  to  all.  Self-command  is 
a  great  virtue;  indulgence  of  passion  is  a  great  fault.  Impertinence 
and  stupid  ignorance  might  sometimes  be  rebuked,  were  it  not  for 
the  danger  of  contracting  a  morose  and  irritable  habit  of  speaking. 
There  is  no  loss  of  dignity,  or  of  self-respect,  in  perfect  silence 
under  the  greatest  provocation,  and  that,  accordingly,  is  your  safest 
course.  The  cashier's  popularity  or  unpopularity  gives  character  tt> 
a  bank.  The  directors  are  seldom  visible,  and  sometimes  unknown; 
to  occasional  customers;  but  their  executive  officer  is  an  ever- 
present  and  a  known  man,  and  should  bear  in  mind  the  Latini 
proverb,  namety,  to  "be  cautious  what  he  says,  when,  and  to> 
whom"* 

Should  you  acquire  a  reputation,  you  may  be  solicited  to  change; 
your  place;  or,  becoming  discontented,  may  seek  to  do  so  on  your 

*  A  "bill-broker,"  says  Mr.  Windham  Beaves,  "should  avoid  babbling,  and  be  prudeat 
in  his  office,  which  consists  in  one  sole  point,  that  is,  to  hear  all  and  say  nothing." 


306  PRACTICAL    BANKING. 

own  motion.  In  the  former  case  you  are  to  consider  your  direc- 
tors as  your  friends,  and,  stating  all  the  facts  fairly,  obtain  their 
views  before  taking  a  single  step  to  meet  the  overture  made  to  you. 
This  is  an  imperative  duty;  and  performing  it  in  honor,  and  acting 
under  the  advice  of  wise  counselors,  you  can  hardly  come  to  a 
wrong  conclusion.  I  assume  here  that  your  bank  is  sound,  and 
that  it  is  under  the  direction  of  competent  and  safe  men.  If  un- 
fortunately otherwise,  if  your  reputation  be  at  stake,  and  your  di- 
rectors, or  a  governing  part  of  them,  are  ignorant  or  regardless  of 
the  principles  of  banking,  or  are  "speculators,"  who  seek  their  own 
accommodation,  you  should  retire  at  once.  But  upon  this  point  I 
will  not  dwell,  since  it  is  to  be  hoped  that  such  institutions  and 
such  men  have  nearly  passed  away. 

It  is  related  that  the  eminence  of  the  five  brothers  Rothschild,  as 
bankers,  is  to  be  attributed  in  a  great  measure  to  their  strict  observ- 
ance of  their  father's  dying  injunction,  to  "remain  united."  Well 
may  it  be  so.  Unanimity  in  the  direction  of  a  bank  is  always  an 
element  of  success;  and  the  result  of  my  observation  in  this  regard 
is,  that  more  losses  occur  from  divisions,  than  from  any  other  single 
cause.  Accommodation  notes,  large  and  standing  loans  to  particular 
parties,  and  similar  departures  from  legitimate  banking  are  only  to 
be  tolerated  in  cases  which  receive  the  assent  of  the  entire  direc- 
tion. Yet  I  have  known  one  and  all  of  these  departures  to  be  con- 
summated, time  and  again,  by  directors  who  owned  the  smallest 
A  possible  amount  of  stock,  in  opposition  to  the  remonstrances  of 
older  and  abler  associates  who  were  large  stockholders;  and  years 
I,  when  legal  remedies  had  been  exhausted,  and  levies  and 
set-offs  had  failed  to  restore  more  than  costs  of  suit,  have  person- 
ally made  wearisome  journeys  and  devoted  weeks  to  the  service  of 
closing  up,  as  I  best  could,  these  unfortunate  illustrations  of  the 
rule  that  "  a  majority  should  govern  "  in  the  directors'  room,  as  in 
politics.  In  short,  such,  in  my  view,  are  the  evils  of  the  majority 
principle  in  this  connection,  that  I  would  counsel  a  cashier, 
whether  young  or  old,  to  insist  upon  a  reasonable  change,  and  a 
change  refused,  to  seek  an  institution  more  wisely,  more  safely  con- 
ducted. 

You  may  be  discontented  without  cause.  I  remember  to  have 
read  a  story,  in  which  one  of  the  characters  was  in  possession  of 
everything  that  heart  could  ask,  but  was  miserable  from  this  very 
circumstance,  or  because  he  wanted — a  want.  Such  persons  exist  in 
real  life.  Be  not  of  that  unhappy  class.  Accommodate  yourself  to 
your  condition.  Do  not  seek  for  happiness  in  change  of  place,  but 
in  change  of  disposition.  "The  lazy  ox  wishes  for  the  trappings  of 
the  horse,  and  the  steed  sighs  for  the  yoke,"  is  an  old  saw  that 
has  not  yet  lost  its  meaning.  Nor  should  the  topic  be  dismissed 
without  recalling  the  pithy  epitaph  composed  for  the  hypochondriac, 


SUGGESTIONS  TO   YOUNG  CASHIERS.  307 

who  quacked  himself  into  his  grave:  "I  was  well\  but  by  endeavor- 
ing to  be  better— am  here."  Let  the  young  cashier  heed  the  moral 
contained  in  these  several  apt  sayings,  and  remember  that  care  and 
perplexity  exist  everywhere.  To  smoothe  and  fashion  the  rough 
stone  of  life  is  a  religious  duty.  The  change  of  one's  home  in- 
volves a  change  of  society,  of  privileges  of  worship,  of  schools,  of 
facilities  in  traveling,  of  household  expenses,  of  access  to  books, 
and  various  other  essentials;  and  should  be  carefully  considered  in 
every  aspect  before  it  is  actually  undertaken.  And  I  bestow  the 
more  attention  upon  the  point,  because  the  propensity  to  remove 
from  one  place  to  another  is  so  common,  and  because  within  the 
circle  of  my  acquaintance,  many  have  been  ruined,  and  but  few 
have  improved  their  condition  or  increased  their  happiness,  by  seek- 
ing a  new  abode.  In  middle  age,  the  experiment  is  doubly 
hazardous.  Take  up  a  full-grown  tree,  and  will  it  live  unless  some 
of  the  old  earth  go  with  it?  Sunder  the  ties  of  sympathy  and  af- 
fection; exchange  old  faces  and  associates  for  new  ones,  and  what  is 
the  condition  of  a  man  ? 

To  resume  my  personal  address  to  the  young  cashier,  you 
should  not  possess  an  overweening  desire  of  praise,  nor  invite  com- 
mendation. Nor  should  you  be  intoxicated  with  your  own  merits. 

You  should  never  speak  of  your  official  acts,  except  in  explana- 
tion and  in  self-defence.  In  all  pleasantry,  I  will  add,  that,  in  old 
age,  you  may  tell  the  son  who  succeeds  you  what  you  were  in  your 
youth ;  but,  now,  be  content  with  the  quiet  appreciation  of  others. 
Delicate  attentions  and  marks  of  respect  are  the  surest  and  best 
manifestations  of  regard,  and  if  you  have  these,  do  not  pine  in 
discontent  or  discouragement. 

In  your  official  intercourse  with  the  president  and  directors,  ob- 
serve great  deference ;  and  at  the  "  Board  "  it  may  be  proper  to  ad- 
dress the  former  by  his  title. 

Never  speak  of  the  real  or  supposed  faults  of  character  of  a  di- 
rector in  the  social  circle,  nor  bear  tales  or  remarks  from  one  director 
to  another.  Whatever  your  preferences,  likes,  and  dislikes — and  you 
will  probably  have  both — your  conduct  should  be  uniformly  respect- 
ful to  all.  Whenever  your  opinion  is  asked,  or  given,  without  so- 
licitation, state  your  views  modestly,  and  in  a  conversational  tone 
of  voice.  Should  the  "  Board  "  differ  from  you  in  judgment,  and  de- 
cide contrary  to  your  convictions,  betray  no  feeling,  but  promptly 
and  cheerfully  execute  their  vote. 

Frequent  communications  with  the  directors,  relative  to  the  gene- 
ral concerns  of  the  bank  and  to  your  own  particular  duties,  will 
be  of  essential  service  :  since  they  will  thus  obtain  a  knowledge  of 
details,  and  you  will  have  the  benefit  of  their  reflections  and  sugges- 
tions. "  Conference,"  says  the  wise  Lord  Bacon,  "  maketh  a  ready  man." 

Your  style  of  living  is  a  matter  of   momentous  consequence  ;  and, 


308  PRACTICAL    BANKING. 

possibly,  the  hinge  on  which  your  final  destiny  will  turn.  Not  only 
live  within  your  income,  but  so  regulate  your  expenses  that,  un- 
avoidable misfortunes  or  sickness  excepted,  you  shall  be  sure  to 
save  at  least  a  quarter  part  of  your  salary,  as  a  fund  for  old  age, 
unless,  indeed,  your  patrimonial  estate  be  ample  for  such  a  pur- 
pose.* But,  whatever  be  your  receipts  or  expectations  from  other 
sources,  do  not  allow  your  expenditures  to  exceed  your  personal 
earnings.  Be  this  the  great  economic  maxim  of  your  life. 

Economy  is  the  parent  of  honesty,  of  freedom,  and  of  mental 
ease  and  quiet.  Poverty  can  never  enter  your  abode,  if  content 
with  satisfying  your  real  wants;  while  you  will  never  enjoy  inde- 
pendence, if  you  live  in  accordance  with  the  world's  caprice.t  If 
you  possess  an  inordinate  craving  for  great  wealth,  or  a  desire  to 
indulge  in  luxuries  and  amusements  such  as  men  of  fortune  alone 
can  afford,  you  have  mistaken  your  profession,  and  should  abandon 
it.  For  your  life,  if  you  remain  in  it,  will  be  a  perpetual  struggle 
against  your  natural  inclinations  ;  and  the  danger  is,  that,  finally 
yielding  to  them,  you  will  involve  yourself  in  irretrievable  woe. 

The  road  to  disgrace  is  short.  Persons  who  have  traced  the 
footsteps  of  more  than  one  unhappy  bank  officer  that  has  trodden 
it,  have  found  that  extravagance  and  defalcation  were  but  a  few 

*  I  designed  to  say  a  word  in  the  text  on  the  subject  of  salaries.  As  a  general  rule,  the 
compensation  to  bank  officers  is  too  small.  According  to  a  return  to  Parliament,  in  1832,  the 
number  of  persons  employed  in  the  Bank  of  England  and  its  branches,  was  nine  hundred  and 
forty,  who  (to  average  the  salaries)  received  only  £225,  or  about  eleven  hundred  dollars  each, 
per  annum.  Since  several  who  filled  the  higher  posts  were  paid  very  much  larger  sums,  it  is 
evident  that  a  considerable  part  of  this  numerous  corps  could  not  have  received  more  than  a 
moiety  of  the  above  average.  Yet,  as  at  the  same  time  there  were  one  hundred  and  ninety- 
three  on  the  pension  list  who  enjoyed  annually  (on  the  average)  £161,  or  about  eight  hun- 
dred dollars  each,  the  faithful  officers  of  that  institution  who  were  then  in  actual  service, 
could  hope  for  relief  in  their  declining  years.  In  the  United  States,  the  system  of  pensions 
is  not,  perhaps,  practicable  or  desirable.  But  since  marriage,  a  flock  of  little  ones,  the  owning 
of  a  house  unincumbered  'with  mortgage,  and  a  choice  collection  of  books,  are  all  Virtue's 
sentinels,  directors  ought  always  to  have  reference  to  the  support  of  a  family  in  fixing  the 
compensation  of  their  executive  officers.  Indeed,  such  officers,  like  capable  and  faithful  men 
in  other  pursuits,  should  be  allowed  to  provide  something  for  old  age.  It  is  fair,  I  suppose, 
to  assume  that  the  expense  of  the  executive  department,  as  a  common  thing,  is  not  far  from. 
one  per  cent,  on  the  capital  stock,  or,  in  the  proportion  of  one  thousand  dollars  salary  to  one 
hundred  thousand  dollars  capital.  If  this  be  so,  it  is  manifest,  at  a  glance,  that  a  large  part 
of  the  bank  officers  in  the  United  States  ( as  gentlemen  are  now  compelled  to  live  both  in  city 
and  country)  are  required  to  consult  the  maxims  of  "Poor  Richard"  every  day  in  order  to 
secure  a  moderate  competence.  The  interests  of  stockholders  are  not  promoted  in  the  long  run, 
by  low  salaries,  for  low  salaries  not  infrequently,  as  experience  shows,  induce  speculations  in 
stocks,  and  other  irregularities,  which  terminate  in  defalcation.  As  a  class,  bank  officers  are 
not  so  well  paid  as  officers  of  railroads  and  manufacturing  establishments,  while  their  duties 
are  quite  as  responsible. 

t  The  great  English  banker,  Thellusson,  who,  at  one  time,  was  partner  with  Mr.  Neckar, 
the  celebrated  French  financier,  left  three  sons,  and  a  fortune  of  three  and  a  half  millions  of 
dollars,  which  estate,  he  said,  he  acquired  by  "  industry  and  honesty."  In  his  will  he  re- 
marks :  "  It  is  my  earnest  wish  and  desire  that  my  sons  avoid  ostentation,  vanity,  and 
Pompous  sho-w"  etc.  The  three,  it  may  be  added,  became  members  of  the  House  of  Com- 
mons, and  the  eldest,  a  peer  of  the  realm. 


SUGGESTIONS  TO  YOUNG  CASHIERS.  309 

strides  apart.*  A  sensual  man  is  disqualified,  by  his  very  physical 
organization,  for  any  office  in  the  executive  department  of  a  bank, 
and  ought  no  more  to  be  there  than  in  a  pulpit.  I  make  the  re- 
mark considerately— for  good  reasons— and  not  to  round  out  a 
period.  And  should  this  essay  meet  the  eye  of  the  father  of  a 
son  ready,  by  age  and  education,  to  enter  upon  some  employment, 
I  venture  to  counsel  that,  if  banking  be  thought  of,  the  moral 
qualities  and  the  strength  of  the  appetites,  as  developed  in  early 
life,  are  the  first  things  to  be  considered.  The  youth  who,  in  child- 
hood, stole  slyly  to  the  closet  for  his  mother's  sweetmeats,  who  was 
never  content  at  table  with  the  share  of  niceties  allotted  to  him, 
who  shirked  his  known  tasks,  and  imposed  their  performance  upon 
a  younger  and  more  dutiful  brother,  and  who,  as  years  wore  on, 
evinced  a  disposition  to  rely  upon  others,  and  to  earn  nothing  for 
himself,  but  yet  who  showed  a  determined  purpose  to  feed  on  the 
best,  and  to  dress  in  the  finest — such  a  youth,  though  as  quick  at 
figures  as  Colburn  himself,  should  never  be  placed  in  a  bank. 

"  Speculation  in  stocks  "  is  another  fruitful  source  of  ruin,  and  I 
cannot  forbear  a  word  of  admonition.  The  careful  investment  of 
your  earnings  or  patrimony,  and  a  similar  service  for  friends  and 
customers,  define,  in  my  judgment,  the  general  limits  of  your  opera- 
tions in  the  stock  market.  To  say  nothing  of  thei  hopes  and  fears 
consequent  upon  the  adventures  of  a  dealer,  and  nothing  of  their 
influence  upon  your  mind  and  temper — already  sufficiently  tasked — 
I  may  ask,  in  all  seriousness,  what  assurance  have  you,  what  as- 
surance can  you  have,  that  your  virtue  will  resist  the  temptations 
sure  to  beset  you?  Once  embarked  and  afloat  on  the  stock  ex- 
change, either  alone  or  with  partners,  you  cannot  move  without 
means:  and  who  shall  answer  for  the  money  intrusted  to  your 
care?  Who  shall  answer  that  you  will  not  "borrow"  from  your 
vault — as  others  have  done — feeling  sure  that  you  can  "return"  the 
sum  you  need  "  in  a  few  days  with  interest  ?  "  At  the  outset  you 
will  not  '•  risk  much ; "  you  desire  only  "  to  gain  something  to  add 
to  a  moderate  salary."  But  encouraged,  at  length,  by  your  own 
success  in  small  operations,  or  excited  by  the  real  or  reported  good 

*  "The  London  banker  of  the  old  school,"  says  Mr.  Lawson,  "had  little  resemblance  to  the 
modern  gentleman  who  is  known  by  the  same  title.  He  was  a  man  of  serious  manners,  plain 
apparel,  the  steadiest  conduct,  and  a  rigid  observer  of  formalities.  As  you  looked  in  his  face, 
you  could  read  in  intelligible  characters  that  the  ruling  maxim  of  life,  the  one  to  which  he 
turned  all  his  thoughts  and  by  which  he  shaned  all  his  actions,  was :  '  That  he  who  would 
be  t>  usted  with  the  money  of  other  men  should  look  as  if  he  deserved  the  trust,  and  be  an 
ostensible  pattern  to  society  of  probity ',  exactness,  frugality ,  and  decorum.'"  And  further, 
says  the  same  writer :  "  The  fashionable  society  at  the  West  End  of  the  town,  and  the 
amusements  of  high  life,  he  never  dreamed  of  enjoying,  and  would  have  deemed  it  nothing 
short  of  insanity  to  imagine  that  such  an  act  was  within  the  compass  of  human  daring,  as 
that  of  a  banker  lounging  for  an  evening  in  Fop's  Alley  at  the  opera,  or  turning  out  for 
the  Derby  with  four  grays  to  his  chariot,  and  a  goodly  hamper  swung  behind,  well  stuffed 
-with  perigord  pies,  spring  chickens,  and  iced  champagne." 


3IO  PRACTICAL    BANKING. 

fortune  of  those  around  you,  the  resolution  may  be  formed  to  win 
a  competence  at  a  single  cast  of  the  die:  you  lose,  and  are  ruined \ 
Be  warned,  I  entreat,  in  time.  No  bank  officer — in  charity,  we  may 
believe — ever  meant  to  be  a  defaulter;  no  one,  at  the  beginning  of 
an  irregular  course,  thought  defalcation  and  disgrace  possible.  Yet, 
alas  for  the  many  victims  of  self-deception !  alas  for  the  self-confi- 
dent, and  for  those  who  neglected  the  great  duty  of  self-examina- 
tion !  Most  affectionately  and  earnestly  do  I  charge  you,  as  you 
value  your  peace,  as  you  would  save  your  integrity,  as  you  would 
not  be  driven  forth,  a  broken  and  shunned  man,  to  resist  every 
seduction  of  avarice  from  within,  and  every  solicitation  of  com- 
panions from  without.  No  matter  what  pretence  or  excuse  a  stifled 
conscience  may  allow  you  to  frame,  the  cash  in  your  vault  is  not  your 
cash,  and  you  touch  it  for  your  private  benefit,  or  relief  even,  as  a 
robber,  and  at  the  peril  of  your  soul!  Think,  ere  you  yield,  of  the 
long  roll  of  sad-faced  men  who  once  were  honored  and  trusted, 
but  who,  when  tempted,  fell !  Think  of  those  who,  wrecked  in 
character,  in  fortune,  and  in  hope,  have  become  bloated,  ragged 
wanderers !  Think  of  those  of  whom  fathers  and  mothers,  and  even 
wives  and  children,  dare  not  speak  save  in  whispers,  and  at  the 
family  fireside !  Think  of  those  who  have  been  hurried  to  the 
prisons  and  to  the  tribunals!  Think  of  the  graves  of  the  suicides! 

A  single  warning  more,  and  I  pass  to  less  painful  topics  of  dis- 
course. Allow  no  customer  to  overdraw  his  account  upon  your 
own  responsibility  or  without  the  express  sanction  and  authority 
of  directors.*  The  habit  is  a  bad  one,  every  wa)%  under  any  cir- 
cumstances ;  and  I  wish  it  could  come  to  an  end  at  once,  every- 
where and  forever.  But  if  it  be  permitted  in  particular  cases  in 
your  bank,  have  neither  part  nor  lot  in  the  matter,  save  to  execute 
a  positive  order.  Discourage  the  practice  in  every  possible  man- 
ner, and  if  fortunate  enough  to  put  an  end  to  it,  you  will  deserve 
the  praise  of  every  correct  banker  in  the  country.  At  your  postr 
and  in  bank  hours,  you  are  to  have  no  friends  to  indulge  with 
favors,  no  enemies  to  punish  with  refusals.  Then  and  there  all  men- 
should  be  alike  to  you.  The  motto  of  the  Banker's  Magazine  should 
be  yours,  without  reservation  or  condition.!  In  fine,  perform  no 
act  that  you  would  omit  in  the  presence  of  the  full  "  Board," 
or  in  that  of  the  sureties  on  your  official  bond.  This  rule  will 
carry  you  safely  through  every  difficulty  and  every  temptation. 

Pardon  me  if  I  now  suggest  the  importance  of  maintaining  a 
reputation  for  strict,  exact  veracity.  An  aged  judge  is  said  to  have 

*  I  believe  that  no  customer  of  the  Bank  of  England,  whatever  his  rank,  is  allowed  to  over- 
draw. 

t  "  No  expectation  of  forbearance  or  indulgence  should  be  encouraged.  Favor  and  benev- 
olence are  not  the  attributes  of  good  banking.  Strict  justice  and  the  rigid  performance  of 
contracts  are  its  proper  foundation." 


SUGGESTIONS  TO  YOUNG  CASHIERS.  31! 

remarked,  ironically,  that  "  half  the  cases  he  had  tried  on  the 
bench  arose  from  good  understanding  between  the  parties ;  "  and  by 
this  he  meant,  that  half-made  bargains  and  agreements  lead  to 
disagreement  and  litigation.  Avoid  misunderstandings  from  this 
source.  Many,  indeed  most,  of  your  transactions  will  be  upon  verbal 
contracts.  But  you  may  use  words  so  terse,  so  precise,  that  mis- 
conception will  be  hardly  possible. 

The  honor  of  a  cashier  and  the  honor  of  a  woman  are  alike.  Sus- 
picion of  either  in  the  public  mind  is  as  fatal  to  reputation  as  con- 
victed guilt.  Stand  by,  stand  for  your  honor,  then,  against  all  comers, 
and  to  the  last.  Preserve  your  own  respect,  though  you  be  fed  by 
the  hand  of  public  or  of  private  charity.  Napoleon,  at  the  hour  of 
his  downfall,  deposited  the  remains*  of  his  fortune  with  Laffitte,  and 
refused  an  offered  and  customary  certificate,  saying  :  "  I  know  you 
— I  hold  you  to  be  an  honest  man."  The  Paris  banker,  in  the 
course  of  events,  became  a  cabinet  minister ;  but  such  a  testimonial 
to  his  probity  from  a  man  whose  estimate  of  human  virtue  was  too 
low  to  be  just,  and  who,  at  the  moment  he  uttered  it,  was,  as  he 
imagined,  the  victim  of  faithlessness  and  treachery,  will  be  remem- 
bered when  the  records  of  his  political  honors  are  torn  and  scat- 
tered. But  yet,  any  man,  in  his  own  circle,  may,  if  he  will,  have 
,t  said  of  him  :  "  I  know  you — I  hold  you  to  be  an  honest  man." 
My  young  friend — now  starting  upon  a  banker's  career — burn  these 
words  deep  into  your  memory! 

As  in  some  things  there  are  marked  distinctions  between  banks 
in  different  sections  of  the  country,  and  between  country  and  city 
banks  in  the  same  State,  and  corresponding  differences  in  the  duties 
of  a  cashier,  it  is  obvious  that  no  series  of  "  suggestions "  can  be 
alike  applicable  to  all.  But  I  may  still  hope  that  the  young  and  in- 
experienced officer  will  not  fail  to  find  some  useful  hints  in  the 
preceding  remarks,  whatever  his  particular  position  or  special 
charge. 

And  while  this  may  be  so,  the  country  cashier  may  yet  need  cau- 
tions and  recommendations  adapted  to  his  peculiar  official  and  social 
relations.  Such,  then,  as  I  deem  the  most  important,  I  shall  briefly 
and  respectfully  offer.  First,  as  it  sometimes  happens  that  the  per- 
son selected  for  the  executive  department  has  had  little  or  no  ex- 
perience in  banking,  and  is  to  be  connected  with  directors  whose 
knowledge  is  as  limited  as  his  own,  the  duty  of  consulting  well- 
informed  officers  of  city  banks  is  manifest.  The  country  cashier 
is  often  alone.  Without  paying  or  receiving  tellers,  bookkeeper,  or 
discount  or  collection  clerks,  but  invested  with  the  functions  of 
all,  skill,  system,  and  an  economical  use  of  time,  are  indispensable 
to  success.  I  have  known  gentlemen  who,  though  possessing  auick 

*  Five  millions  of  francs. 


312  PRACTICAL    BANKING. 

and  clear  perceptions,  and  almost  every  other  natural  endowment, 
were  still,  at  the  time  of  their  election,  incapable  of  opening  or  of 
properly  keeping  a  single  bank-book.  Some  of  these,  remarkably  cau- 
tious in  their  habits  of  business,  and  profiting  by  mishaps,  escaped 
serious  losses,  and,  in  the  end,  became  accomplished  officers;  while 
others,  more  sanguine  in  temperament,  and  more  self-confident,  and 
unwilling  to  seem  novices,  involved  themselves  in  difficulties  which 
caused  them  much  mental  disquietude  and  pecuniary  embarrass- 
ment. Now,  it  is  apparent  at  a  glance,  that  both  classes,  had  they 
started  right,  might  have  avoided  a  great  deal  of  painful  experi- 
ence. 

I  commend  to  you,  therefore,  if  not  bred  to  banking,  the  sources 
of  information,  which  are  open  to  you,  and  to  all  who  desire  to  in- 
crease their  knowledge.  Accuracy  in  the  count  of  money  is  the 
first,  accuracy  in  the  keeping  of  accounts  is  the  second,  qualifi- 
cation in  a  country  cashier ;  and,  while  you  may  acquire  the 
first  by  practice,  you  may  go  wrong  with  your  records  all  your 
life. 

A  small  bank  should  be  conducted  on  a  plan  as  systematic  and 
as  regular  as  a  large  one.  Experience  has  shown,  I  think,  that 
bank  accounts  should  be  kept  in  "  double  entry,"  and  that  each 
department  of  bank  business  requires  a  separate  book.  Thus  in  an 
institution  with  a  capital  of  only  fifty  thousand  dollars,  I  consider 
that  a  general  and  deposit  ledger,  that  books  for  cash,  deposits, 
discounts,  credits,  collections  and  trial-balances,  are  as  essential  as 
in  one  of  a  million  of  dollars.  And  the  same  remark  is  true  of 
stockholders'  and  directors'  records,  of  a  book  to  show  the  state 
of  the  bank,  and  of  another  to  exhibit  the  paper  to  mature  in  any 
given  week. 

The  general  and  the  deposit  ledger  may  be  one ;  the  former  oc- 
cupying some  seventy-five  or  one  hundred  pages,  and  embracing 
accounts  with  things,  the  latter  with  persons.  The  cash  should  be 
settled  daily  at  the  close  of  business,  when,  also,  a  trial  balance 
should  be  taken  of  the  general  ledger  postings.  On  the  last  busi- 
ness day  of  the  month,  the  depositors'  accounts  should  be  adjusted, 
and  the  balance  of  each  be  transferred  to  the  trial-balance  book 
to  ascertain  whether  the  deposit  ledger  has  been  correctly  posted. 
The  daily  settlement  of  the  cash — neglected  in  some  country  banks, 
unless  the  reform  has  been  very  recent — need  occupy  but  a  few 
minutes,  since  a  vault-book  accurately  kept,  leaves  for  actual  count 
the  cash  in  drawer  only.  "  Memorandum  checks,"  and  similar 
vouchers — to  say  nothing  of  the  grave  consequences  which  some- 
times result  from  their  use — are  great  pests  in  a  cashier's  drawer, 
and  should  not  be  allowed  there,  except  in  the  most  urgent  cases. 
Some  cashiers  keep  "  ragged  bills,"  never  intended  to  be  reissued, 
in  vault  for  months,  and  even  years ;  but  the  practice  is  at- 


SUGGESTIONS  TO  YOUNG  CASHIERS. 


3'3 


tended  with  obvious  risk  and  inconvenience,  and  should  not 
exist. 

As  already  intimated  in  another  connection,  your  directors,  how- 
ever worthy  and  respectable  as  citizens  and  gentlemen,  may  be 
poorly  versed  in  the  science  of  banking,  and  may  not,  at  first,  ap- 
preciate the  force  and  the  reason  of  the  rules  which  you  deem 
necessary  to  adopt  in  transactions  with  them  and  with  others.  But 
evince  no  impatience.  I  assume  that  a  majority  of  any  and  of 
every  "Board"  are  men  of  honor,  and  mean  to  do  right;  and  that, 
in  explanations  and  conversations  with  yours,  you  have  but  to 
calmly  point  out  the  evils  likely  to  arise  from  a  course  opposite  to 
that  which  you  insist  upon,  to  obtain  their  approbation.  Yet  you 
yourself  should  be  well  assured  that  these  rules  are  consonant 
to  law,  or  are  such  as  are  imposed  in  well-regulated  banks,  or 
such  as,  in  your  peculiar  position  and  relations,  are  imperatively  de- 
manded. 

It  is  possible  that  your  predecessor  allowed  improper  indulgences 
to  a  particular  director,  or  had  favorites  among  your  customers,  and 
that  you  will  feel  constrained  to  put  an  end  to  these  and  to  similar 
irregularities.  To  accomplish  this,  in  harmony,  will  require  all  the 
wisdom  and  good-nature  that  you  can  command.  It  is  possible,  too, 
that  overtures  may  be  made  to  you  to  grant  favors  inconsistent 
with  your  duty ;  but,  as  such  cases  will  arise  from  thoughtlessness 
or  ignorance,  as  often  as  from  unworthy  motives,  you  should  be 
silent,  except  when  corrupt  intentions  are  too  apparent  to  be  mis- 
taken, or  the  importunities  of  the  same  person  become  so  frequent 
as  to  be  troublesome. 

The  customers  of  a  country  bank,  unlike  the  merchants  of  large 
and  busy  cities,  expect  of  the  cashier  some  inquiries  about  their 
families,  and  remarks  upon  the  news  of  the  day,  upon  the  crops,  the 
weather,  and  other  matters  of  personal  or  local  interest.  To  a 
reasonable  extent  this  expectation  should  be  gratified.  But  discus- 
sions across  your  counter  on  topics  of  sectarian  theology  and  party 
politics  are  to  be  avoided — entirely  avoided.  Nor,  if  you  hear,  should 
you  reply  to,  or  take  part  in,  tales  of  scandal  and  neighborhood 
gossip.  Polite  to  all,  sociable  to  a  degree  not  to  interfere  with 
your  duties,  inviting  and  giving  friendly  greetings,  your  deport- 
ment is  yet  to  be  dignified,  and  such  as  becomes  a  well-bred  gen- 
tleman. 

You  will  transact  business  with  persons  who  cannot  even  write 
a  note  of  hand  in  proper  form  ;  with  those  who  cannot  be  made 
to  acknowledge  the  necessity  of  a  notice  to  an  indorser;  and  with 
those  who  will  pertinaciously  insist  upon  having  their  own  way, 
whatever  your  reasoning  or  objections  to  the  contrary.  Teach  the 
ignorant,  without  giving  them  pain  ;  be  firm  with  the  self-willed, 
without  evincing  impatience  or  anger;  for  the  smart  of  a  sharp 


314  PRACTICAL  BANKING. 

word,  or  of  a  proud  toss  of  the  head,  is  sometimes  felt  for  years. 
"  Contempt,"  says  an  Eastern  proverb,  "  will  penetrate  the  shell  of 
a  tortoise;"  be  sure  to  remember  it  will  pierce  deeper  into  the 
epidermis  of  a  fellow-man. 

To  require,  and  to  insist  upon,  regular  bank  hours  will  occasion 
some  difficulty  in  some  places.  People  whose  business  at  banks  is 
rare,  seem  to  forget  that  a  cashier,  like  other  men,  has  a  love  of 
fresh  air,  or  that  he  needs  exercise  and  relaxation  ;  and  thus  can- 
not or  will  not  understand  why  he  is  not  ready  to  accommodate 
them  early  in  the  morning,  and  late  in  the  evening.  These  per- 
sons seek  him  in  his  moments  of  rest  and  recreation,  ask  him  to 
receive  money  at  his  house,  or  in  the  village  stores,  and  complain 
if  he  refuses  such  reasonable  requests.  You  will  be  unjust  to  vourself 
if  you  submit  to  these,  or  to  similar  demands.  The  intervals  be- 
tween bank  hours  are  yours  by  positive  contract,  and  by  the  very 
necessities  of  your  physical  and  mental  being..  Do  not  permit  in- 
roads upon  them,  save  in  extraordinary  exigencies ;  in  these,  leave 
your  bed  even,  to  serve  a  customer.  Still,  as  loose  and  unsafe 
habits  may  have  been  encouraged  by  your  predecessors,  or  counten- 
anced by  directors,  measures  of  reform  will  be  odious,  unless  grad- 
ual. Under  kind  and  considerate  treatment  your  laggards  may  be- 
come punctual,  and  untimely  requests  to  open  your  vault  entirely 
cease. 

A  single  "  suggestion "  more.  The  private  and  social  relations 
of  a  country  cashier  are  of  consequence,  and  ought  not  to  be  over- 
looked. And,  first,  a  salary  officer,  under  ordinary  circumstances, 
needs  not  to  be  in  debt  for  his  personal  or  family  expenses ;  and, 
as  cash  payments  are  sure  to  show  whether  he  is  "living  beyond 
his  means,"  may  I  not  commend  the  safe  rule  of  "  paying  as  you 
go?" 

Again,  may  I  not  be  allowed  to  suggest  the  duty  of  constant  at- 
tendance at  church,  even  though  you  cannot  worship  with  persons 
of  your  own  faith ;  and  also  of  manifesting  an  interest  in  schools, 
public  lectures,  lyceums,  and  other  means  employed  to  promote  the 
welfare  of  society  ?  The  community  in  which  you  live  have  a  claim, 
upon  you,  not  only  for  an  exemplary  life,  but  for  contributions  ot 
money  in  proportion  to  your  ability,  to  aid  in  the  maintenance  of 
the  religious,  literary  and  benevolent  associations  established  among 
them. 

To  conclude.  Should  it  be  thought  that  I  might  have  omitted 
the  discussion  of  some  topics,  and  have  treated  others  with  greater 
brevity,  I  submit,  with  deference,  that  I  have  endeavored  to  be  a 
careful  observer.  More  than  twenty-five  years  have  elapsed  since 
the  commencement  of  my  connection  with  banks  and  banking ;  and» 
as  I 'now  look  back  and  recall  the  facts  elicited  by  judicious  inquiry, 
and  the  facts  embraced  in  other  well-authenticated  accounts  which 


SUGGESTIONS  TO  YOUNG  CASHIERS.  315 

relate  to  bank  officers  who  have  fallen,  never  again  to  rise,  or 
whose  lives  have  been  saddened  and  embarrassed  by  want  of  firm- 
ness in  resisting  the  allurements  of  pleasure,  or  the  solicitations  of 
the  companions  of  their  social  hours — by  an  overweening  self-confi- 
dence— by  too  great  faith  in  others;  as,  too,  I  remember  the  com- 
plaints against  another  class,  who,  though  without  a  moral  stain, 
have  still  injured  themselves  and  the  institutions  with  which  they 
are  concerned  by  churlishness  and  irritability ;  I  find  no  cautions 
and  admonitions  to  omit,  no  recommendations  that  may  not,  I 
think,  assist  in  forming  the  character  of  the  officer  for  whom  these 
suggestions  are  intended. 

A  single  word  more.  Many  of  the  cashiers  whose  private  virtues 
and  professional  ability  adorn  the  annals  of  banking  in  the  United 
States,  receive  salaries  nearly  equal  to  the  emoluments  of  cabinet 
ministers,  or  military  officers  of  the  highest  rank,  and  are  intrusted 
with  powers  so  ample,  that  they  seem  to  be  private  bankers,  wield- 
ing their  own  capital.  These  gentlemen  have  attained  the  crowning 
honors  of  their  profession.  Let  the  "young  cashier"  aim  to  reach 
the  same  eminence  among  men  and  among  bankers.  Let  him  re- 
member that,  whatever  the  influence  of  friends  at  the  outset  of 
his  career,  his  position  in  the  maturity  of  his  years  must,  in  the 
Very  nature  of  things,  depend  upon  himself,  upon  his  capacity,  his 
courage,  and  his  probity. 

I  have  here  spoken  to  him  as  to  my  only  son,  and  take  my  leave, 
in  the  earnest  hope  that,  in  the  labors  of  some  one  of  his  seniors, 
communicated  to  the  "Magazine"  upon  the  invitation  which,  per- 
haps, I  have  unwisely  accepted,  he  will  be  sure  to  find  a  path 
marked  out  for  him  which  will  lead  him  to  the  rewards  of  a  well- 
spent  life. 


ON  THE  PROTECTION  OP  BANKS  AND  OTHER  MONEYED 
INSTITUTIONS  FROM  LOSSES  THROUGH 
DEFAULTING  OFFICERS.* 


The  surrounding  of  the  deposits  and  securities  held  by  the  cor- 
porate and  private  banks  and  bankers,  with  the  most  effective  guards 
possible  against  fraudulent  loss,  is  a  matter  of  far-reaching  import- 
ance. Guards  have  been  multiplied  from  time  to  time,  with  the 
expansion  of  business  and  the  growth  of  experience,  but  the  de- 
falcations that  have  happened  within  the  last  two  or  three  years, 
have  led  many  a  banker  to  inquire  whether  it  was  not  possible 
to  devise  and  apply  more  effective  protection  against  these  unwel- 
come occurrences. 

In  approaching  the  subject,  it  is  fitting  to  remark  that,  not- 
withstanding the  number  of  defalcations  among  bank  officials,  there 
is  no  reason  for  concluding  they  are  more  wicked  in  general  than 
other  persons.  Nearly  all  the  prominent  banks  throughout  the 
country  are  public  institutions,  and  consequently  their  errors  and 
wrongdoings  are  exposed  to  the  public  eye.  Of  their  managers, 
so  long  as  they  behave  well,  nothing  is  said,  but  the  moment 
they  depart  from  the  right  way,  they  learn  that  the  public  eye 
is  on  them,  and  that  the  voice  which  is  slow  to  praise,  while 
they  do  right,  is  quick  to  condemn  when  they  do  wrong.  In  pri- 
vate business,  conducted  quietly  and  not  subject  to  public  examin- 
ation, many  a  confidential  clerk,  or  other  trusted  person,  embezzles 
without  public  exposure.  In  railroad  and  other  companies  also, 
these  events  occur,  yet  remain  unknown  except  to  a  few.  Now 
and  then  a  case  of  this  kind  comes  to  light.  The  much  larger 
number,  doubtless,  are  safely  entombed  from  public  knowledge.  If 
the  entire  record  of  frauds  of  this  nature  were  known,  consider- 
ing the  amount  of  money  and  securities  handled  by  the  two 
classes — those  employed  in  banks  and  those  employed  in  other 
kinds  of  business — it  is  believed  that  the  record  of  the  former 
class  would  be  much  whiter  than  the  record  of  the  other. 

*  This  Paper  was  prepared  and  read  by  ALBERT  S.  BOLLES,  at  the  Chicago  Convention  of  the 
American  Bankers'  Association,  Sept.  24th,  1885. 


ON  THE  PROTECTION  OF  BANKS.  317 

With  this  introduction  we  advance  to  the  subject  itself.  Our 
first  proposition  is— the  more  elaborate  the  machinery  for  conduct- 
ing the  banking  business,  so  long  as  undivided  direct  responsibility 
is  maintained,  the  more  complete  is  the  security.  The  mode  of 
receiving  and  paying  the  public  money  is  a  good  illustration.  Those 
who  are  familiar  with  the  system  adopted  by  Hamilton,  and 
somewhat  improved  by  his  successors,  know  that  it  is  very'  elab- 
orate, giving  rise  to  the  name  of  "  red  tape."  If  the  Government 
sought  to  receive  and  disburse  the  public  money  in  the  most  direct 
manner  possible,  it  would  throw  aside  no  inconsiderable  part  of  the 
machinery  now  used.  Why,  then,  is  a  system  so  cumbrous  main- 
tained ?  To  gain  greater  security.  The  system  is  so  arranged  that 
the  action  of  each  officer  is  a  check  on  every  other,  thereby  ren- 
dering the  perpetration  of  frauds  more  difficult.  Their  small  num- 
ber, considering  the  magnitude  of  the  operations  of  the  Govern- 
ment, have  long  ago  proved  the  wisdom  of  the  experiment,  and 
amply  justified  the  cost  of  maintaining  it.  A  bank  can  multiply 
its  checks  or  guards  against  fraud  and  error  without  mingling  per- 
sonal responsibility,  followed,  however,  by  three  important  conse- 
quences :  First,  the  employment  of  more  men ;  secondly,  increasing 
the  expense;  and,  thirdly,  diminishing  the  facility  for  transacting 
business.  A  bank  desires  to  transact  its  business  economically  and 
quickly,  especially  in  saving  the  time  of  its  customers.  How  far  it 
can  prudently  go  in  increasing  its  expense  or  in  taking  the  time  of 
its  customers  in  order  to  erect  stronger  guards  against  loss  for  the 
benefit  of  all,  must  obviously  be  left  to  the  determination  of  each 
bank.  We  shall  make  some  remarks  in  another  place  that  may  be 
of  use  in  forming  an  answer.  Before  doing  so,  however,  we  shall 
pass  to  another  side  of  our  subject. 

Frauds  and  errors  happen,  for  the  most  part,  among  those  who 
handle  the  securities  or  cash,  by  which  is  here  meant  money — bills 
and  specie.  There  is  not  much  opportunity  of  perpetrating  fraud  in 
receiving  checks,  which,  of  course,  constitute  by  far  the  larger  por- 
tion of  bank  deposits.  Nor  is  there  much  danger  among  bookkeepers 
of  making  false  entries.  Sometimes,  it  is  true,  they  have  forged 
checks,  passed  them  off,  and  entered  them  in  their  ledgers  and  in 
the  books  of  depositors,  but  cases  of  this  kind  are  nov  infrequent. 
Note  tellers,  too,  have  sold  notes  not  matured,  and  appropriated  the 
proceeds ;  happily,  such  frauds  are  rare.  Frauds  are  confined  princi- 
pally to  those  who  handle  the  money  or  have  control  of  it.  What 
guards,  therefore,  can  be  erected,  to  prevent  them  from  abstracting 
the  money  entrusted  to  their  keeping? 

Let  us  consider  the  receiving  teller  first.  Some  banks  require  the 
money  of  depositors  to  go  through  the  hands  of  two  receiving 
tellers.  The  first  one  will  take  it  and  count  it,  and  enter  it  on  his 
book  and  give  a  ticket  for  the  amount,  and  then  return  it  to  the 


318  PRACTICAL   BANKING. 

depositor,  who  takes  it  to  the  second  teller,  by  whom  it  is  received 
as  well  as  the  ticket,  recounted  and  entered  on  his  book.  In  posting 
such  deposits  it  will  be  seen  that  an  admirable  system  of  checks  is 
created ;  for  the  keepers  of  the  individual  ledgers  may  post  from 
the  first  teller's  record,  while  the  general  bookkeeper  may  make  his 
posting  from  the  second  teller's  record,  and  thus  a  good  check  is 
established  all  around.  But  such  a  system  must  detain  the  de- 
positor for  a  longer  time,  and,  for  this  reason,  is  not  always  desirable. 
Moreover,  many  banks  receive  deposits  without  counting,  deposit- 
ors trusting  entirely  to  the  honesty  and  accuracy  of  the  bank  of- 
ficials. In  such  banks,  of  course,  the  system  just  described  would 
be  useless. 

Another  guard  might  be  established.  The  depositor  might  be  re- 
quired to  make  two  tickets  describing  his  deposits,  leaving  one  with 
the  discount  clerk  or  other  designated  official,  and  the  money  and 
.second  ticket  with  the  receiving  teller.  Then  the  general  bookkeeper 
might  post  from  one  set  of  tickets  and  the  individual  bookkeepers 
from  the  second  set,  and  thus  a  good  system  of  checks  be  estab- 
lished. 

Another  thing  can  be  done,  namely,  after  counting  the  money  of 
the  depositor,  to  return  it  and  have  him  deposit  it  in  a  proper  re- 
ceptacle, and  which  the  receiving  teller  cannot  open.  If  this  were 
done  he  would  have  no  money  whatever  in  his  possession,  save 
during  the  count.  But  then  it  would  be  necessary  for  somebody 
to  handle  it,  and  when  this  was  done  the  risk  of  loss  would  be  in- 
curred. Many  of  the  recent  defalcations  have  been  by  receiving 
tellers,  who  have  made  false  entries  of  the  amount  received.  Some 
of  them  would  have  been  sooner  detected  by  writing  up  the  books 
of  depositors  more  frequently,  or  by  having  them  compared  with 
the  books  of  the  bank  by  other  officials  than  those  who  made  the 
entries.  The  practice  of  writing  up  the  books  of  depositors  with 
regularity  is  falling  into  disuse ;  a  reform  in  this  regard  ought  to  be 
made  at  once.  Moreover,  why  could  not  a  rule  be  made,  or  stat- 
ute enacted,  if  necessary,  requiring  depositors  to  present  their  books 
within  stated  periods — thirty,  sixty,  or  other  days — and,  if  not  ob- 
served, absolving  the  bank  for  all  losses  from  error  that  may  have 
occurred?  It  may  be  fairly  presumed  that  errors  could  be  more 
easily  corrected  soon  after  their  happening  than  they  can  be  at  a 
much  later  time.  Surely  a  bank  ought  not  to  suffer  for  the  contribu- 
tory negligence  of  its  depositors. 

Now,  let  us  consider  the  paying  teller.  He  must  be  entrusted 
with  money  for  making  payments.  But,  why  could  not  a  clerk  or 
other  person  be  detailed  every  day  for  counting  the  paying  teller's 
cash  in  the  morning  before  beginning  business,  and  after  his  proof 
is  made  at  the  close  of  the  day,  for  the  purpose  of  finding  out 
whether  any  error  or  fraud  has  been  committed  ?  What  is  the  pres- 


ON    THE    PROTECTION    OF    BANKS.  319 

ent  system  ?  The  paying  teller  makes  out  his  proof  at  the  close  of 
the  day  and  submits  it  to  his  superior  officer;  but  whether  his 
cash  corresponds  with  his  statement,  who  knows?  When  Scott,  the 
paying  teller  of  the  Manhattan  Bank  of  New  York,  ran  away  with 
a  large  amount,  a  few  months  ago,  it  was  assumed  that  he  took  it 
during  his  last  day  of  service,  but  on  what  reason  is  the  assump- 
tion founded  ?  May  he  not  have  abstracted  money  from  time  to 
time  for  a  long  period— from  the  time,  in  fact,  since  the  last  count 
had  been  made  by  others  ?  Well  knowing  that  his  cash  was  re- 
counted only  at  considerable  intervals,  he  was  quite  safe  in  helping 
himself  if  he  desired.  This  judgment,  therefore,  of  a  sudden  rob- 
bery is  not  tenable,  so  long  as  the  present  system  is  continued ; 
whether  the  paying  teller's  proof  is  correct  or  not  is  purely  a  mat- 
ter of  faith.  Why  is  it  not  practicable  and  also  desirable  to  desig- 
nate a  man  every  day  to  go  over  the  paying  teller's  cash  after  him, 
and  thus  make  more  certain  the  truth  of  his  statement?  Of 
course,  if  the  examiner  and  paying  teller  should  combine  to  com- 
mit fraud,  it  would  be  just  as  easy  as  before.  We  would  suggest 
the  designation  of  a  different  person  from  day  to  day :  sometimes 
the  president  doing  it,  sometimes  the  cashier,  and,  again,  a  director 
might  be  willing  to  make  an  examination  of  that  kind;  and  so,  by 
varying  the  examination  constantly,  might  we  not  with  reason  hope 
that  the  paying  teller  would  exercise  greater  care  in  making  up  his 
statement  than  he  does  at  present. 

In  suggesting  such  an  examination  to  a  bank  officer,  not  long 
since,  he  remarked  that  no  paying  teller  would  submit  to  it;  but 
another  bank  officer  of  longer  experience  remarked  that  a  paying 
teller  who  would  not  submit  was  quite  unfit  for  his  place,  that  no 
honest  officer  objected  to  any  investigation,  however  searching  or 
frequent.  If  it  were  general,  and  not  spasmodic  or  casual,  and  ap- 
plied to  all  paying  tellers  without  distinction,  it  is  believed  they 
would  not  object  to  the  examination.  We  all  know  that  examina- 
tions are  constantly  made,  of  one  kind  or  another;  moreover,  it 
should  be  remembered  that  all  checks  and  investigations  are  for  a 
twofold  purpose— to  discover  errors  as  well  as  frauds,  for  it  is  inev- 
itable that,  in  conducting  a  business  with  the  utmost  care,  errors 
will  occur,  and  investigations  are  always  in  order  to  prevent  and  dis- 
cover them. 

A  similar  examination  might  be  daily  conducted  of  the  receiving 
teller's  cash.  By  counting  the  amount  in  the  morning  and  the  first 
set  of  depositors'  tickets  above  mentioned,  and  his  cash  at  the  close 
of  the  day,  it  would  seem  to  be  impossible  for  him  to  commit  fraud, 
except  through  collusion. 

Another  precaution  that  may  be  mentioned  in  this  connection,  is 
that  of  keeping  the  largest  possible  amount  of  money  under  double 
lock  and  key,  so  that  conjoint  action  will  be  necessary  to  get  it. 


320  PRACTICAL    BANKING. 

Some  banks  keep  their  reserve  in  this  way,  but  why  not  extend  the 
precaution  further?  Each  bank,  of  course,  must  determine  for  it- 
self how  far  it  can  go  in  this  direction.  Probably  a  little  thought 
bestowed  on  this  matter  would  be  quite  enough  to  show  the  prac- 
ticability of  diminishing  very  largely  the  amount  of  ready  money  in 
the  absolute  possession  of  the  receiving  or  paying  teller.  Why 
would  it  not  be  practicable,  whenever  a  given  sum  was  received, 
say,  $15,000,  $20,000,  or  $25,000  or  more,  to  have  it  counted,  and, 
perhaps,  recounted  by  another,  and  labeled,  and  put  away  under 
double  lock  and  key,  and  on  the  other  hand,  of  giving  to  the  pay- 
ing teller  a  comparatively  small  sum  from  time  to  time  as  the  occa- 
sion required. 

Two  purposes  would  be  accomplished  by  such  management  of  the 
money  deposits.  In  the  first  place,  the  portion  put  away  in  the 
vault  would  be  doubly  secured ;  and,  in  the  second  place,  as  the 
portions  in  the  possession  of  the  receiving  and  paying  tellers  would 
be  lessened,  they  could  be  more  easily  counted,  and  thus  facilitate  the 
work  of  comparison  with  their  daily  proofs. 

In  this  connection  may  be  mentioned  the  keeping  of  securities, 
bonds,  stocks,  etc.,  of  which  many  banks  hold  large  quantities,  either 
as  owners  or  as  collateral  for  loans.  It  is  easy  enough  to  contrive 
endless  records  for  their  safe  keeping.  The  burden  and  danger, 
however,  finally  center  on  the  person  with  whom  they  are  en- 
trusted. What  checks  can  be  devised  to  prevent  him  in  an  evil 
hour  from  making  a  wrongful  use  of  them?  From  inquiries  made 
cf  some  great  banking-houses,  this  is  the  most  serious  part  of  their 
business.  Among  other  precautions,  the  use  of  the  double  lock  and 
key  is  worth  mentioning.  Sometimes  the  risk  is  divided  by  deposit- 
ing the  securities  in  several  places;  when  they  are  not  to  be  often 
changed  or  renewed  they  might  be  put  under  triple  lock  and  key, 
thus  further  diminishing  the  risk  of  loss.  May  not  other  and  much 
better  protection  be  created  by  invoking  the  power  of  the  State  to 
enact  and  enforce  laws  prohibiting  the  circulation  of  wrongfully-taken 
securities?  Suppose,  for  example,  that  convenient  places  were  estab- 
lished by  law  where  all  the  stocks  and  bonds  of  railroads  and  other 
companies  might  be  registered,  and  which,  after  registration,  should 
be  declared  non-transferable  except  by  the  owner,  and  if  fraudu- 
lently transferred  without  his  knowledge,  could  be  recovered,  even 
if  in  the  possession  of  an  innocent  holder;  would  not  a  regulation 
of  this  kind  make  every  purchaser  careful,  and  render  negotiation  by 
a  fraudulent  holder  difficult?  Effective  regulations  have  been  made 
for  the  registration  of  Government  bonds.  In  our  judgment  the 
system  might  be  greatly  extended  without  inconveniencing  the  parties 
wishing  to  buy  or  sell  or  pledge  them.  To  a  considerable  extent, 
pledgees  have  the  contracts,  whereby  securities  are  assigned  to  them, 
fully  written  out,  and,  of  course,  in  such  cases,  fraudulent  negotia- 


ON    THE    PROTECTION    OF    BANKS.  321. 

tion  is  effectually  prevented.  The  more  generally  this  practice  is  ob- 
served the  better.  From  an  early  period  the  courts  and  legislatures 
have  been  alert  in  protecting  the  parties  to  bills  of  exchange, 
promissory  notes,  and  similar  instruments,  against  loss  through  fraud 
or  otherwise;  enormous  quantities  of  securities  exist  in  the  country, 
and  the  holders  and  pledgers  have  been  singularly  remiss  in  pro- 
tecting them  from  fraudulent  circulation.  Why  could  not  statutes- 
be  enacted,  making  the  purchasers  of  stolen  securities,  in  some  cases, 
at  least,  participants  in  the  crime?  Perhaps  statutes  could  not  be 
enacted  broad  enough  to  cover  all  cases.  But  they  certainly  could 
cover  the  employees  of  all  banking  institutions,*^  depositories.- 
Let  us  put  this  idea  in  a  more  concrete  foprrT  Suppose  the  law 
required  every  purchaser  of  bonds,  stoc^k^t5ertincates,  or  written  or 
printed  securities  of  any  kind,  to  inquire  of  the  seller  his  residence 
and  business  or  occupation,  and  if  the  purchaser  shouM  know  or  be- 
lieve that  the  seller  was  an  employee  (or  the  confederate  of  one) 
in  a  corporate  or  private  bank  or  banking-house,  trust  company, 
depository  or  Savings  bank,  that  the  seller  must  show  his  authority 
in  writing,  under  seal,  to  sell  the  same.  And  suppose,  when  such 
an  employee  should  offer  to  sell  securities  of  the  nature  described, 
the  statutes  should  declare  that  the  purchaser  was  presumed  to 
know  the  business  of  the  seller,  thus  requiring  the  purchaser  to 
prove  that  he  did  not  know  or  believe  the  seller  to  be  an  employee 
(or  confederate  of  one)  of  a  banking  concern.  If  such  statutes 
were  enacted,  making  the  buyer  criminally  as  well  as  civilly  liable, 
they  would  not,  we  believe,  prevent  the  honest  negotiation  of  se- 
curities, but  would  lessen  their  wrongful  negotiation. 

We  confidently  believe  that  if  the  subject  were  considered  in  a 
compreher  sive  and  thorough  manner,  a  system  of  protection  could 
be  devised  that  would  commend  itself  to  legislative  bodies,  and, 
through  them,  be  transformed  into  law.  We  know  of  no  body  of. 
men  more  fit  to  undertake  the  work  than  this  association. 

Having  briefly  covered  a  part  of  our  subject,  we  shall  proceed  *to> 
inquire  what  guards,  if  any,  can  be  erected  to  prevent  defrauding 
by  the  higher  officers.  Some  persons  maintain  that  none  can  be,, 
that  with  them  the  risk  must  be  taken ;  that  character  alone  is  the 
only  guard  on  which  stockholders  and  depositors  can  rely.  But 
why  cannot  an  auditor  or  examiner  be  appointed  by  a  bank,  or  by 
several  of  them,  who  shall  examine  carefully  and  constantly  into  the 
transactions  of  the  institutions  included  in  his  appointment  ?  This 
is  the  English  method  of  guarding  against  fraud  and  error.  Several 
years  ago  one  of  the  largest  banking-houses  in  our  country,  having 
been  defrauded  by  an  employee,  concluded,  after  a  thorough  consider- 
ation of  their  mode  of  doing  business,  that  the  most  effective  check 
against  fraud  and  error  would  be  a  constant  examination  of  their 
business  by  a  person  in  whose  character  and  ability  they  had  com— 


322  PRACTICAL    BANKING. 

plete  confidence.  He  was  called  an  auditor,  and  given  a  good  salary. 
After  a  long  trial  his  work  is  regarded  with  much  satisfaction. 
Occasionally,  he  discovers  an  error,  and  at  all  times  there  is  a  feel- 
ing of  security  attending  his  supervision,  which  amply  justifies  the 
expepse.  Of  course,  it  is  as  practicable  for  banks  to  have  an  auditor 
or  examiner  of  this  kind  as  for  that  banking-house.  It  is  a  ques- 
tion of  adding  to  the  expense,  for  the  purpose  of  increasing  the 
security;  and  many  of  the  larger  banks  especially  could  well  afford 
to  incur  it.  Several  of  them  might  unite  in  employing  one.  In  the 
country  a  much  larger  number  might  unite — perhaps  ten,  twenty,  or 
thirty  banks,  and,  by  thus  uniting,  the  expense  would  be  small. 

They  are,  perhaps,  more  needed  in  country  banks  than  in  the 
larger  city  banks,  for  the  reason  that  in  the  former  class,  which 
have  fewer  officials,  fraud  can  be  more  easily  perpetrated.  When  a 
bank  has  a  cashier,  and  only  one  or  two  assistants,  whose  president 
is  a  nominal  officer,  and  whose  board  of  directors  do  not  actually 
participate  in  the  direction,  it  is  not  difficult  for  the  cashier  to  per- 
petrate a  fraud,  if  he  be  so  inclined.  In  the  earlier  days  of  the 
National  banking  system,  there  was  no  little  opposition  to  public 
examinations ;  happily,  this  feeling  has  quite  died  away.  It  may  be 
that  banks  yet  opposed  to  them  would  favor  private  examina- 
tions. In  this  connection  another  thought  may  be  thrown  out,  namely, 
that  the  examiner  might  be  appointed  by  the  stockholders  from 
year  to  year,  and,  consequently,  act  quite  independently  of  the  board 
of  directors  and  officers,  and  so,  very  properly,  serve  as  a  check  on 
them.  It  must  be  remembered  that  his  duties  would  consist  simply 
in  examining  and  reporting ;  he  would  have  nothing  whatever  to  do 
with  the  management.  If  such  persons  were  appointed  generally, 
the  absence  of  such  a  man  in  a  bank  would  be  a  notice  to  the 
world  that  it  did  not  wish  to  do  business  with  the  care  and  cir- 
cumspection exercised  by  similar  institutions.  The  appointment  of 
this  official,  therefore,  might  well  be  by  the  stockholders,  thereby 
making  him  independent  of  the  president,  cashier,  and  directors, 
and  granting  to  him  such  power  to  examine  and  report  to  the 
stockholders  as  they  should  deem  expedient. 

It  may  be  objected  that  private  examiners  would  imperfectly  per- 
form their  duties,  and  sometimes  serve  as  a  blind  for  wrong-doing 
instead  of  preventing  it.  "Can  any  better  service  be  expected  of 
them,"  remarks  the  objector,  "than  is  now  rendered  by  the  National 
bank  examiners,  and  is  not  that  imperfect  ? "  No  time  need  be 
wasted  in  explaining  to  you  the  difficulties  in  their  way.  You  well 
know  they  are  required  to  examine  too  many  banks  to  do  their 
work  thoroughly,  however  competent  they  may  be.  This  is  the 
chief  difficulty  in  the  way  of  adequate  National  bank  examinations. 
If,  however,  they  were  conducted  by  order  of  the  stockholders,  the 
work  of  the  examiners  could  be  so  narrowed  as  to  ensure  the  high- 
est degree  of  efficiency. 


ON    THE    PROTECTION    OF    BANKS.  323 

After  devising  the  best  possible  machinery,  can  perfect  security 
be  obtained  against  fraud?  Certainly  not.  The  system  of  checks 
may  be  so  perfect  that  one,  or  two,  or  three  wrong-minded  officials 
cannot  perpetrate  them,  but,  if  enough  combine,  they  can.  The 
element  of  trust  cannot  be  wholly  eliminated,  and,  wherever  it  is 
placed,  fraud  is  possible.  Therefore,  after  establishing  all  the  guards 
which  are  likely  to  prove  effective,  honest  men  must  be  employed. 
It  is  useless  to  attempt  to  make  or  keep  men  honest  through  the 
magic  of  machinery.  This  may,  indeed,  prevent  a  dishonest  man 
from  accomplishing  his  evil  purposes,  but  cannot  change  them.  How, 
then,  can  a  bank  secure  honest  officials  ?  Darwin's  process  of  natural 
selection  throws  no  light  on  our  inquiry.  With  some  brief  thoughts 
on  three  of  the  many  sides  of  this  inquiry,  we  shall  conclude  our 
paper.  One  of  the  most  common  evils  to  which  bank  officials  succumb 
is  speculation.  Concerning  the  prevalence  and  consequences  of  it, 
nothing  need  be  said  here.  We  all  know  that  by  far  the  greater 
number  of  bank  defalcations  issue  from  this  poisonous  spring.  Pos- 
sibly it  may  be  said  that  such  defaulters  were  fated,  and  if  they 
had  not  wrecked  themselves  and,  generally,  others,  too,  by  specu- 
lating, they  would  have  done  so  in  another  way.  We  shall  not 
push  the  inquiry  so  far.  The  clearly-exposed  fact  is  lying  before 
every  eye,  that  speculation  of  the  kind  with  which  we  are  most 
familiar,  is  the  most  frequent  cause  of  defalcations.  The  practical 
question  to  be  considered  is  :  How  shall  officials  be  treated  who 
engage  in  speculation  ?  The  other  day  I  asked  a  highly  successful 
banker  the  question  :  "  If  you  found  out  that  one  of  your  clerks 
was  speculating,  what  would  you  do  with  him  ?  "  He  replied  :  "  I 
would  discharge  him  instantly."  Perhaps  you  imagine  that  this 
banker  knew  all  about  speculating,  yet  it  ought  to  be  said  that  I 
am  quite  sure  that  he  does  not  speculate.  Probably  there  are  bank 
officers  who  would  not  employ  speculating  clerks,  yet  who  speculate 
themselves.  In  such  cases,  they  would  answer  that,  having  more 
means,  their  operations  are  less  hazardous  to  themselves,  and,  conse- 
quently, their  business  can  be  conducted  with  a  cooler  head,  and 
without  anxiety.  Nevertheless,  we  must  face  three  disturbing  series 
of  facts  :  First,  the  defalcations  of  prominent  officials  possessing 
wealth,  cool  heads,  and  sagacity;  secondly,  a  long  and  nearly  un- 
broken line  of  decisions  by  the  courts,  declaring  the  business  to  be 
gambling,  and  contracts  of  this  nature  illegal  and  not  enforceable  at 
law;*  and,  thirdly,  no  bank  whose  officers  are  known  as  speculators 

*  It  is  well  settled  that  when  the  parties  to  an  executory  contract  for  the  sale  of  prop- 
erty intend  that  there  shall  be  no  delivery  thereof,  but  that  the  transaction  shall  be  settled 
by  the  payment  of  the  difference  between  the  contract  price  and  the  market  price  of  the 
commodity  at  the  time  fixed,  the  contract  is  void.  First  National  Bank  v.  Oskalousa 
Packing  Co,  Albany  Law  Journal,  Aug.  8,  1885,  p.  118;  Gregory  v.  Wattowa,  58 
Iowa  711;  Murray  v.  Ocheltree,  59  Iowa  439;  Pixley  v.  Boynton,  79  111.  353;  Logan 
v.  Mustek,  8 1  111.  415;  Corbett  v.  Under-wood,  83  111.  324;  Bigelow  v.  Bendedict^  70 
New  York  202;  Ir-win  v.  Williar,  no  U.  S.  499;  Thompson  v.  Cummings,  68  Ga.  125; 
Barnard  V.  Backhaus,  52  Wis.  593;  Flagg  v.  Baldwin^  38  New  Jersey  Eq.  219;  Calp 
v.  Prell,  U.  S.  Cir.  Ct.  38  Bank.  Mag.  622;  Melchert  v.  Ant.  Un.  Tel.  Co.  11  Fed. 
Rep.  193;  Gregory  v.  Wendell,  39  Mich.  337. 


324  PRACTICAL    BANKING. 

enjoys  the  high  credit,  especially  in  times  of  financial  distrust  and 
disaster,  which  is  enjoyed  by  the  banks  whose  officers  do  not  specu- 
late. These  are  the  undeniable  facts.  What  opinion  ought  to  be  enter- 
tained of  an  officer  who  pretty  regularly  attended  horse  races,  and 
bet  on  the  results?  There  was  a  bank  defaulter  of  this  type  last 
year.  And  what  opinion  ought  to  be  entertained  of  an  officer  in 
any  place  of  trust,  who  is  engaged  in  a  business  which  the  law  plainly 
declares  to  be  gambling,  and  which  so  often  leads  to  disastrous  re- 
sults ?  The  speculator  knows,  when  putting  up  his  margins,  that  if 
he  succeeds,  some  other  person  must  necessarily  lose ;  it  is  not  a 
business  in  which  both  parties  can  gain,  as  in  an  ordinary  exchange. 
In  view  of  the  clear,  legally-defined  nature  of  speculation,  and  of 
the  disastrous  consequences  to  which  it  constantly  leads,  cannot  the 
banks,  when  seeking  to  render  themselves  more  secure  against  fraud, 
post  better  sentinels  than  speculators  at  their  gates? 

An  Englishman  once  remarked  that  twice  he  came  near  losing 
everything — once  when  he  lost  a  lawsuit,  and  the  other  time  was 
when  he  gained  one.  The  story  of  speculation  is  very  similar  to 
the  Englishman's  legal  experience.  If  one  wins,  he  tries  again; 
and  when  the  passion  for  speculation  is  fully  developed,  it  rarely 
stops,  save  with  bankruptcy  and  the  grave.  Some  banks  have  a 
by-law  declaring  that  no  loans  shall  be  made  to  their  officers — 
this  can,  in  effect,  be  easily  evaded  by  procuring  loans  through 
friends.  A  watchful  board  of  directors  might  prevent  its  defeat  by 
making  careful  inquiry  into  the  relations  of  applicants  with  the 
officers  of  the  ba'nk. 

Another  side  of  this  inquiry  at  which  we  shall  look  for  a  mo- 
ment is  the  relation  between  compensation  to  bank  clerks  es- 
pecially, and  frauds.  Very  often  when  a  fraud  has  been  discovered, 
the  remark  is  made :  "  Oh !  that  clerk  was  poorly  paid ! "  Are 
frauds  to  any  extent  the  outgrowth  of  inadequate  pay?  Do  the 
higher  officials  perpetrate  them  because  their  salaries  are  too 
small?  What  kind  of  honesty  is  that  which  is  gauged  by  the 
rate  of  compensation  ?  It  belongs  to  a  peculiar  species,  and  which, 
if  really  existing,  should  be  carefully  noted.  For,  evidently,  it  must 
be  of  a  dangerous  nature,  inasmuch  as  the  employer  can  never 
tell  when  he  is  paying  enough  to  keep  the  recipient  over  the 
safe  line  of  honesty. 

Some  clerks,  who  are  dissatisfied  with  the  compensation  they 
receive,  would  be  in  any  case.  It  is  erroneous,  however,  to  suppose 
that  dissatisfaction  is  confined  to  them.  That  is  a  universal  and 
needful  ingredient  in  human  nature ;  the  tonic  of  mankind,  stimu- 
lating to  new  and  higher  endeavor.  It  does  not  follow  that  an 
increase  of  compensation  would,  or  should,  satisfy  men,  so  long  as 
higher  places  and  greater  influence  and  wealth  can  be  rightly 
gained.  Increase  the  compensation,  and  only  the  form  or  type  of 


ON    THE    PROTECTION   OF   BANKS. 


325 


dissatisfaction  would  be  changed.  On  the  other  hand,  some  clerks 
do  not  think  how  much  their  superiors  are  dissatisfied  with  them, 
how  imperfect  is  their  work,  how  lacking  in  zeal  and  interest,  and 
with  what  little  regret  their  resignations  would  be  accepted.  They 
do  not  think  how  easy  it  would  be  to  fill  their  places,  and,  per- 
haps, at  lower  salaries.  There  is  a  desire  among  banking  employees, 
as  among  other  classes,  to  wear  better  clothes  and  live  in  better 
houses  than  their  incomes  will  justify  them  in  doing.  A  person  in- 
flamed with  such  a  desire  is  utterly  destitute  of  the  prime  essential 
of  a  successful  banker,  namely,  of  making  more  than  he  spends. 
Moreover,  we  venture  to  remark  that  those  having  such  a  desire 
would  probably  suffer  it  to  grow  beyond  any  increase  of  salary,  so 
that,  whatever  might  be  their  compensation,  their  unsatisfied  wants 
would  in  no  wise  be  diminished. 

While  believing  these  things  to  be  true,  we  would  also  add  that  if 
greater  watchfulness  were  exercised  over  them,  their  lot  might  be 
improved,  and  their  dissatisfaction  and  anxiety,  in  some  cases, 
lessened  or  removed.  If  assistance  were  rendered  in  times  of  sick- 
ness or  other  unexpected  adversity,  they  might  feel  more  con- 
tented, and,  perhaps,  display  a  stronger  interest  and  pleasure  in 
their  business.  In  many  cases,  too,  banks  could  well  afford  to  give 
more  generous  compensation,  and  might  receive  a  yet  more  gener- 
ous return,  in  the  way  of  better  service.  Different  practices  pre- 
vail among  banks  in  their  treatment  of  employees,  and  the  subject 
is  well  worthy  of  your  considerate  attention,  for  in  it  is  bound 
up  not  only  their  greater  contentment  and  prosperity,  but  also  the 
exercise  of  their  best  ability  and  faithfulness. 

The  last  side  of  this  inquiry  is  the  punishment  of  delinquents  as 
a  means  for  deterring  others  from  wrong-doing.  The  criminal  laws 
are  executed  so  poorly,  that  no  longer  do  they  possess  much  re- 
straining force.  The  chances  for  escape,  either  by  running  away,  or 
by  compounding  the  crime,  are  so  great,  that  persons  with  an  evil 
intent  do  not  fear  of  feeling  the  power  of  the  State.  In  truth  our 
criminal  laws  are  a  kind  of  half-believed  and  faintly-enforced  declar- 
ation of  the  popular  will.  Their  terrors  long  ago  disappeared.  Did 
not  Ward  startle  the  country  more  than  a  year  and  a  half  ago,  and 
yet  we  have  not  learned  that  the  officers  of  the  law  are  particularly 
unhappy  over  his  situation.  It  is  true  that  he  is  now  receiving  his 
callers  at  Ludlow  street  jail,  instead  of  his  former  home,  but,  if  the 
jail  be  less  elegant,  the  difference  is  not  great  enough  to  deter 
others  from  doing  as  he  did  whenever  a  similar  opportunity  shall 
occur.  It  is  true  that  Eno  is  having  a  better  time  at  Quebec. 
And  his  immunity  from  punishment  is  a  shocking  illustration  of  the 
defectiveness  of  our  treaty  relations  with  Canada.  There  he  lives, 
almost  within  sight  of  the  scene  of  his  crime,  where  he  can  look 
at  his  victims  and  mock  at  them,  and  yet  live  in  security.  The 


326  PRACTICAL   BANKING. 

safety  of  the  banks  and  other  institutions  of  both  countries  impera- 
tively requires  that  this  awful  disregard  of  justice  should  cease.  The 
business  and  social  relations  of  the  two  countries  are  so  close,  their 
mutual  protection  so  desirable,  that  neither  country  ought  any  longer 
to  be  an  asylum  for  the  criminals  of  the  other. 

This  remark  is  closely  linked  with  our  final  one,  which  is,  co- 
operation among  the  banks  to  protect  each  other  from  frauds  of 
every  kind.  When  an  officer  learns  something  of  the  conduct  of  an 
official  in  another  bank,  which  he  thinks  the  president,  or  directors, 
or  stockholders  would  like  to  know,  and  would  thank  him  for  tell- 
ing, should  he  not,  in  a  fitting  way  and  time,  impart  his  informa- 
tion ?  And  if  all  bank  officers  showed  this  mutually  helpful  spirit, 
their  institutions  would  be  more  secure  than  they  are  now.  And 
this  spirit  might  properly  have  a  wider  outflow  to  the  giving  of 
such  knowledge  concerning  the  perpetration  of  frauds  from  the  out= 
side,  as  would  protect  banks  from  forgeries  and  other  bad  paper,  the 
paying  of  questionable  checks  and  the  like.  Strong  as  nearly  all  the 
banks  are,  they  would  yet  be  stronger  if  seeking  to  sustain  each 
other  in  all  right  ways;  while  the  business  would  become  more 
human  and  agreeable  when  thus  conducted  under  the  kindlier  light 
of  mutual  interest  and  protection. 

In  concluding,  we  shall  return  to  the  general  remark  expressed  at 
the  beginning.  It  is  easy  to  multiply  guards,  but  they  are  attended 
with  expense  or  delay  in  transacting  business.  On  the  one  hand, 
the  competition  among  banks  to  attract  depositors  is  so  great,  that 
quite  generally  they  adopt  the  quickest  and  most  agreeable  methods 
of  business ;  and  on  the  other,  to  attract  borrowers,  securities  as- 
signed in  blank  are  taken,  and  other  risks  of  varying  nature  are 
assumed.  In  other  words,  in  many  cases  banks  voluntarily  and 
knowingly  assume  risks  in  conducting  their  business  in  order  to  in- 
crease it,  or  to  save  expense.  This  is  the  short  statement  of  the 
matter.  They  can  erect  other  guards  if  they  desire,  but  in  so  doing 
must  probably  add  something  to  their  expense,  and  sometimes  exact 
more  of  their  depositors.  Whether  they  are  always  justified  in  as- 
suming their  risks,  it  is  not  for  me  to  determine.  In  a  general  way 
it  may  be  said,  if  the  banks  resolved  more  unitedly  to  strengthen 
themselves  against  wrong-doing,  they  would  conserve  their  own  and 
their  customers'  interests,  and  exercise  a  stronger  restraining  influ- 
ence on  those  who,  living  on  sandy  foundations,  are  in  danger  of 
slipping  away,  and  of  burying  others  beneath  their  own  ruin. 


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